Navigating the Unpredictable:
Mastering Uncertainty in Project Controls

Originally aired on 1/30/2024

60 Minute Watch Time

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It’s not just you: Uncertainty in construction really is unusually high these days. Whether because of inflationary pressures, adverse weather events, or shifts in materials availability – or all of those factors – successful project control demands an ever more delicate balancing act between scope, cost, and schedule.

But helpful tools and techniques are out there. Replay this conversation between Brad Barth, Chief Product Officer and John Upton, Vice President of Control at InEight, as they discuss integrating scope, cost and schedule to optimize project controls, even in the face of the most daunting uncertainties.

Tune in to learn about:

  • Aligning risk analysis across scope, cost and schedule.
  • Steering clear of common pitfalls when enhancing project controls. 
  • Overcoming the challenges of integrating risk management.

TRANSCRIPT


Brad Barth:

All right. Well, it looks like people are filing in here, so let’s go ahead and get going. I want to welcome everybody to this session here today. Navigating The Unpredictable, Mastering Uncertainty in Project Controls is our topic. And it seems like maybe we struck a chord. We got a big group coming in here, so great to see. Thank you all for coming. We’ll do introductions here in just a minute, but first let’s do a little bit of housekeeping. So, just want to make sure that everybody is aware this will be recorded. So, AACE will make this available to all of you if you need to go back and refer to it. That will be available through the recording. And it is eligible for CEU credits. So, with that, the one other bit of housekeeping that I want to mention is that we encourage questions. We’re going to make sure we leave time.

John and I are both notorious for going long, but we’re going to keep each other on course here and make sure that we leave time at the end for questions. So, really important here, put your questions, if you look at that Q&A box there in your Zoom ribbon, that’s where we want to put the questions. So, not in the chat, but put them in the Q&A. And like I said, it’s a big group, so if we get a lot of questions, one of the cool things about this is that you all have a chance to upvote questions. So, as those questions are coming into that Q&A area, you can glance at them and click on the ones that you really want to hear the answers to as well. So, if we have to choose from amongst them, go ahead and upvote those questions. But don’t put them in the chat. Put them in the Q&A.

All right, with the housekeeping out of the way, let’s do some introductions before we get to get to the topic. So, my name is Brad Barth, chief product officer here at InEight. We’ll do a little bit of who is InEight here in just a second, but I came to InEight from a company called Hard Dollar. Going way back, some of you may have used Hard Dollar in the early days for estimating and project controls. I’ve been at this for three decades or so on this vision that we now call InEight, that Hard Dollar became part of. So, my role here is to look after product strategy, product roadmap, and supporting our go-to-market initiatives. That’s me. John, you want to tell us about yourself?

John Upton:

Sure. My name is John Upton. I’m the vice president of product here at InEight as well. Currently oversee our field execution, cost, contract and design management products. Responsible for the vision, the roadmap, and the deliverables to help ensure that we meet the customer’s needs. Prior to that, I spent a little over 10 years at one of the largest construction and engineering companies in North America where I spent a lot of time in the field getting my hands dirty and utilizing the software that we’ll be referencing today.

Brad Barth:

Perfect, thank you, John. So, just real quick, who is InEight? InEight, the essence of it, and again, this is the vision that we’ve been running at for several decades now and really you can boil it away to InEight’s goal and vision is to bring together scope, costs and schedule. So, the fundamental dimensions of project controls, we want to bring those together under a common platform. We ultimately break all that down into about 16 different business processes from estimating the procurement, contract management, work planning, scheduling, et cetera.

But this common project controls platform is really InEight’s claim to fame. You’ll see that. So, we’ll use that to underscore the topic when we talk about project uncertainty and how you deal with it. One of the great ways to deal with it is to use an integrated process. So, we’ll use the InEight platform to be the backdrop as we go through that discussion. So, this is not an InEight commercial, so that’s all I’ll say there about InEight, but certainly at ineight.com if you’re curious to learn more about us, feel free to jump out there after the webinar. John, you want to take us through?

John Upton:

Sure. So, some of the key takeaways we want to accomplish today with this webinar is we want to discuss some of the current drivers of the uncertainty that we face today. We all know there’s a bunch of uncertainty out there and we want to discuss some of those current drivers as well as understand the difference between risk and uncertainty. While they are different, the line between the two gets blurred sometimes. So, we take a few minutes to discuss the differences, as well as best practices for managing both risks and uncertainties. And lastly, we want to walk through how a connected platform can enable an effective change management process. But before we get into that, we’d like to take a quick poll of the audience. So, if we could pull up the poll questions please. We will give 30 seconds, 45 seconds or so for people to fill this out. Trying to gauge our audience today. So, we’ve got about 400 folks in here right now. Just curious what you do and who you are.

Brad Barth:

While that’s coming in, one of the things that I think gives us a unique vantage point here at InEight is we get to live vicariously through all of our customers and we have them around the world, all different sizes, different types of work, and so we get to see the industry through the lens of hundreds and hundreds of customers. So, it’s a great opportunity here as we go through this content to share with you all how we see the industry. But starting with, let’s understand who you are first here with this poll.

John Upton:

I don’t have a timer going, but that’s probably enough time. All right. Contractor, owner, engineer, pretty level.

Brad Barth:

Makes sense. We’ve got three architects in there too. Estimators, project managers. Great. Perfect.

John Upton:

Nice. All right. Let’s continue on.

Brad Barth:

Okay. So, before we get into the meat of today’s topic, let’s just level set, and again, this is, like I was leading up to, InEight’s vantage point of the construction industry itself. So, go to the next one there. I’m not going to dwell on these. I think any construction industry outlook, you hear about these things. So, probably nothing unique here, but these are certainly the types of issues that we’re running into that are driving uncertainty in our industry and construction is notoriously challenging at any point over the last, and certainly the three decades that I’ve been at this, these issues have been prominent, some more than others at different times. But I think certainly the evolving scope, we see that one maybe taking a different shape or color, particularly with the continued trend more towards iterative construction and more design build and progressive design build.

Scope is often less defined before construction starts than it ever has been. So, that one is certainly a prominent factor. But things like the pandemic, some geopolitical issues, particularly in Europe, but really elsewhere. Extreme weather certainly has been around. Nothing new there, but I think what’s happening with some of those weather events that we’re seeing is that the supply chain is becoming more global, or at least more geographically widespread. So, sometimes you may think you’re buying from a local vendor, but maybe they’re getting components from somewhere on the other side of the world. So, a weather event in another country or another side of the world might affect your supply chain. So, some of those trends that are happening in the overall economy are hitting construction.

And of course the ever present scarce resources. I think you’ll see in one of our surveys here in just a minute how that’s affecting folks in all parts of the world. Not just labor, a lot of specialized equipment and other things like that are becoming harder and harder to lock down. So, let’s go to the next one. So, as I mentioned, we at InEight have a nice opportunity to survey the industry through our customers and just the general market. One of the things we do is every year we do a global capital projects outlook. This report, the latest one is available on our website, so if you want to download it, I forget how many pages, 80 pages or something like that. A nice survey of just issues going on in this capital projects industry and construction industry. So, I picked out a few of those graphs. So, first of all, do we have uncertainty in construction? I think you could say the answer to that question is yes, just based on this response, right?

We’re challenged as an industry to deliver projects on schedule and on budget. And over time, we typically see this between 40 and 50%, I’m not sure there’s a trend here yet, particularly when you look at just these three years considering what’s happened over the last couple of years. But certainly that 40 to 50% achievement of plan and schedule and budget, a lot of that’s due to the uncertainty that we’re going to talk about here today. Let’s go to the next one. So, what are the challenges? When we asked the market what are the challenges that are impacting the ability to deliver on time and on budget, we’ll touch on some of these as we go through the content, but certainly things like communication gaps, unexpected events, you see that unmanaged or unexpected risks, inability to see where we’re at. But interestingly the non-standardized systems and disconnected processes as well. So, that’s InEight’s mission is to solve that one on the far right there. So, we’ll talk about that as well. Let’s go to the next one here.

John Upton:

Yeah. I was just going to add that the non-standardized systems, lots of people rely on point solutions still, lots of Excel files, spreadsheets, and a lot of companies that we encounter are really lacking standard business processes to help collect and analyze the data. And we always talk about data is king, but if you don’t know how to analyze it or understand it, it’s not really much use. It’s more noise than anything.

Brad Barth:

Yeah. Great point, John. And I think a lot of the things that we’re going to talk about today in terms of best practices are things that you could certainly implement to some degree without a connected platform and without that integrated business process, but certainly having that makes it a lot easier and becomes a way to enforce those best practices across your organization. So, good point there, John. And then, what are the factors that have disrupted your company over the last 12 months? Really all of these I think were on that prior slide that we just started with in terms of the challenges and the factors that are driving uncertainty. So, inflation, supply chain issues, energy security, which is often a function of that, or at least sometimes a function of those geopolitical or weather events can have an impact on energy availability and cost. And then certainly the labor and recruitment challenges that we have seen in the industry for as long as any of us can remember.

So, those are just a quick state of the industry, probably no surprises there. I think we’re all living through those things. But just wanted to tee that up as a backdrop so as we start talking about risk and uncertainty, we’ve got that backdrop to frame it up. So, we’re going to spend most of our time talking about uncertainty, but I find when I talk about this sometimes there’s a confusion, what’s risk versus uncertainty? And like many things in construction, there’s not a glossary, a standardized terms list that everybody speaks the same vernacular, everybody’s got a little bit different language on stuff. So, let’s spend a couple of minutes just differentiating between risk and uncertainty, and then we will get deep into the uncertainty side of this.

But when we talk about risk, we’re talking about things that are probabilistic. We’re talking about things that you can model. You can take a scientific approach, you can look at what are the potential outcomes and then start to, whether it’s through simulation or other models or just a lot of historical data, you can manage those risks. And then if we go to the uncertainty side of that, it’s the other end of the spectrum. It’s things that is super difficult to predict, not really something that you could model, things that are completely unexpected. And maybe a good way, I like the dice icon up there, John and I were just at our annual innovators event that happened to be in Las Vegas last week, and John, did you partake in any risks that maybe the house had taken advantage of while you were in Las Vegas?

John Upton:

Oh, I absolutely did. I’m not very good at managing risk when it comes to the casinos. They obviously mitigate risk very well as they always tend to come out on top. But I have a few colleagues that like the roulette tables and basically throw risk out the door and just root on luck, sheer luck. But yeah, it’d be nice if the construction industry had the ability to mitigate risk the way that the casinos do.

Brad Barth:

Well, it’s a great example of the difference, because I think, certainly from my perspective when I’m sitting at any of the tables or blackjack or whatever it is in Las Vegas, it feels random and it feels like the results are chaotic and uncertainty, hard to predict. But certainly the house and the casinos have figured out how to model those outcomes and they know perfectly well, given enough data, what are the outcomes. So, a great, great example there. But let’s keep going. Let’s go to the next one.

So, this is an area, again, just to make sure some of the terms are understood here. When we talk about uncertainties, you can break those down into foreseen and unforeseen. And so, sometimes you’ll hear uncertainties referred to as you have an uncertainty risk and what people mean when they’re talking about an uncertainty risk is really those foreseen ones. So, it might be like when we talk about a schedule and we’re looking at activities in a schedule and maybe we get three different subject matter experts to say, well, we think this one is going to be 100 days, somebody else thinks it’s 110 days, somebody else thinks it’s 120 days. Or even something like weather where we don’t know for sure that weather’s going to be a problem, but maybe if we’re a paver and we’re doing asphalt work in an area where there’s a lot of rain or snow in certain parts of the year, we’ve got enough experience where that’s a foreseen risk, we can look at historical results or historical data and try to manage that risk as best as we can. So, it’s foreseen.

For the purposes of today’s discussion, we’re going to treat that on the risk side. So, when we talk about managing risk, we’ll talk about the event risks, discrete risks, and those foreseen uncertainties. And we’re only going to spend a minute or two on the risk side of it. If you’re interested, InEight has done webinars in the past with AACE, and on our website we’ve got some of those available where we really go deep into how the InEight platform can be used to do quantitative risk assessments and manage risk registers and all that kind of stuff that goes to that scientific probabilistic approach. We’re going to spend most of our time on the right side of this, on how do we deal with those unforeseen uncertainties. Let’s go to the next one there.

On the risk side of it, it’s really all about creating a model. I always use predicting the weather as an example. It is another example, just like the Las Vegas one, the weather certainly feels chaotic, feels sort of random, it feels like uncertainty. But we have pretty good models that over time, given enough historical data, we can use those models, we can do simulations to predict with pretty good accuracy what the weather is going to be like. Whereas on the unforeseen uncertainties, when we’re dealing with those things, these are things that come at us out of the blue. These are things that we just didn’t see coming. And on that side of it, as you’ll see when we get into it, it’s really about behavior. It’s really about how do we respond to those things, how do we communicate, how do we make sure that we’ve got an adaptable, flexible approach as those things come along.

So, like I said, let’s spend a minute here just talking about risks and then we’ll spend the rest of our time on the uncertainty side of that. So, when we talk about risks, and more that scientific approach and that probabilistic approach. Some best practices, certainly fostering a risk aware culture is critical. We need to make sure that we’re thinking about those risks early and often, that it’s a part of our process, it’s not an afterthought. And it involves all stakeholders. Those risks are going to exist not just in our own company, but if we’ve got a JV partner, if we’ve got suppliers and if we’re the owners, some of those risks are on us. So, critical to get visibility of those risks across all stakeholders. An active risk register, we need to have a centralized place where we’re listing those risks, or opportunities.

We always talk about risks as a negative, but the positive risks, which could be opportunities and move up the schedule or move down the cost. So, getting all those in a risk register, and that’s what’s going to allow us to do those qualitative and quantitative assessments and analysis across those risks. How do those risks affect our schedule? How do they affect our budget and our ability to deliver the project on time? And then number six, a lot of that stuff as you look around and thinking about what drives those risks, some of that supplier risk might be in a contract management system. Some of the productivity risk or resource risk might be in our scheduling system or our work planning system, or even our estimating system. So, this is an area where there’s a very siloed approach. Traditionally all those risks, if we don’t have a good centralized view of those, it’s pretty hard to do a true assessment of those risks and understand their impact on the cost and schedule.

So, that platform is, like I said, a great way. You can do all of those best practices without an integrated platform, but an integrated platform makes it a heck of a lot easier. And like I said, lots of information on how InEight’s risk management system can come into play on that left side with those risks. But here you see an example of a Monte Carlo based approach where here we happen to be looking at the budget, but we could also be looking at the schedule. And those red column headers are telling us, hey, what kind of contingency do we want in our budget or our schedule based on, maybe we want a 90% certainty, or 80% certainty, or 75%. Let’s go through, do simulations and assess those risks and look at what are some logical contingencies both in duration and costs. So, the InEight platform can be used to do that. Certainly that can be done manually too, just a whole lot harder. So, that’s all I’m going to talk about on the risk side, like I said, we’re going to spend most of our time here on the uncertainty bit of it.

So, same thing here. Let’s start with some best practices and then I’m going to turn it over to John to take us through what that looks like in dealing with these uncertainties. So, having contingency plans for critical work. You might say, well, how do we have a contingency plan if it’s unforeseen uncertainties? Well, a contingency plan is all about what are the critical items that if they go wrong, they’re going to have a ripple effect or a severe effect on the budget or the schedule. So, we can have contingency plans even without risks. We don’t know what they are, what those risks are, but we can still have a plan B and a plan C.

Understanding the schedule, relationships and dependencies is certainly important. How it changes maybe to our cost, do those affect the schedule, changes to the schedule, do they affect the cost? And even just within the schedule, what are the things that are most likely to, if this gets delayed, what are those critical items in the schedule that are going to push everything down? Be flexible and adaptable. I’m sure John will talk a lot about this. And this is that behavior part that I was talking about, as these unforeseen things come at us, we need to be ready to deal with them.

And a big part of that is communicating and collaborating. We can’t solve those uncertainties without a lot of communication, a lot of collaboration internally and across the stakeholders. And again, lastly here, this is an area where an integrated platform for managing that change, much like risk is embedded throughout the project controls domain, managing these changes as they come along is in the same bucket. A lot of siloed approaches to dealing with these changes as they come along where an integrated approach can really make that a lot easier. So, with that, over to you John, and talk us through how that can come into play here.

John Upton:

Appreciate it, Brad. So, uncertainty is chaotic. There’s no sugarcoating that, but lots of times it can be disorganized chaos. So, this is just an example. We run into an issue out in the field, foreman somehow has to notify the office, whether it’s over a lunch break, or send a picture or email to the office. We got lots of back and forth collaboration with the client. Do we need to fix this, who’s going to fix it, when? We have to price out the issues, not only utilizing our budget rates but markups and figuring out what we’re going to charge the client for this. We got to notify the scheduler. Hey, do we have enough float in our schedule? Is this affecting the critical path? Do we need to do a TIA? We can’t self-perform all this work, so we got to notify our vendors and get a vendor change order.

Then once all that information is compiled, we got to get an executed change order. And then at the same time, we got to maintain our budgets and our forecast to update our projections to be as accurate as possible. And as you can see, there’s lots of lines of communication in this process. Lots of disjointed steps, likely with point solutions, you’ve got spreadsheets, a lot of duplicate entry, emails, phone calls. All of which really give room for error with data discrepancies. But what if all of this was in a connected platform and these steps ran simultaneously and there was no duplicative data entry? So, let’s take a look at what that might look like.

So, out in the field the foreman noticed this pipe. It’s not supposed to be where it is. So, having an integrated solution on his daily plan, on his iPad or his iPhone, he can snap a picture and if the client rep is out in the field with him, they can sign off on this daily plan and get a daily report email to them directly after the daily plan is approved. At the same time they can click a button that says send issue, on the top left there. And that’s going to create an issue in our issue log. And with it comes all of the association such as the name, the location, the date, the picture, any task that might be affected by this operation or this issue in the field.

And as well, they can notify the scheduler. So, with the click of a button I can send an email to my scheduler and say, hey, we have a potential issue. We need to start looking at this immediately. I guess with any uncertainty, timely collaborative communication is key into getting this issue resolved in a timely basis so that one, it’s not affecting the rest of your operation or project, but you can get it sorted quickly so that you can move on and move past it, which we’ll discuss a little bit more here. So, I send an email to the scheduler, he’s going to start working on that schedule. RFI. I need to have some correspondence with the client. So, directly from that issue I can create an RFI. And with it, again, since it’s integrated, all that same metadata comes over into the RFI, I can add any additional information that may be needed and then seamlessly send this over to the client through workflows.

And while that’s all happening, my cost controllers project engineers are going to be pricing out this issue. So, as you can see on this screen, we’re pricing out the cost at the different cost types, whether that’s labor, equipment, materials, or even vendors. And at the same time, we’re also adding our markups. So, not only are we increasing our budget, but also our revenue. And depending on what kind of contract this is, you might have predetermined contractual rates that you want to utilize for a more accurate estimate on this issue. So, we have the same unit rates that were utilized in the estimate brought over into this change order that we’re pricing up.

So, we’re making sure we’re using the exact same rates. I don’t have to go search through a spreadsheet that’s likely not even on my computer, or if you’re really old school, a three ring binder that we used to have back when I first started in the construction industry. All the information is right here at your fingertips to help price out this change order. And if it’s even a larger change order, having the ability to take specific cost items or estimate new scope in your estimating system and bring that directly over here, again, using all those existing rates and just a more detailed price buildup of what this issue is going to cost. Do you have anything to add on that, Brad?

Brad Barth:

No, that’s a good point, John. And it goes to the siloed approach that typically comes into play. A lot of times some of that logging of the issue itself is maybe over here and then you got your scheduling system over here. Maybe, to your point, if it’s a major change or a scope change, we’re going to go over to the estimating system or another spreadsheet to put that data in, and that creates its own risk. So, having those different systems that are not in sync and that are not communicating and you’re not getting the full context of that data, is its own risk. So, I think, to your point, I’m sure you lived through this in your prior life, the chaos that comes just from having to go look in 20 different places to try to bring a change order together. And then when you get questions about it, go find, oh, where was that communication, how did we come up with that number? Having all of that at your fingertips I’m sure makes a big difference.

John Upton:

For sure it does. And again, having the information at your fingertips allows for that timely decision making, which is a big component of managing uncertainty. So, now as we’re pricing this change order up, my cost engineer, project engineer, project manager, has full visibility into this activity or this issue. So, I can see I have a new task in my cost breakdown structure. It’s identified as being associated to an issue. And I can also see real time how much this issue is potentially going to cost me. As of right now, it’s just issue cost. You’ll notice on the right-hand side my forecast, I’m not forecasting anything yet because we haven’t got any type of notification from the client yet on whether to proceed or not. So, it’s just giving you a reference without having to build a big pivot table and a spreadsheet. I got all that information at my fingertips and I’m aware that, hey, there’s a $30,000 issue out there that we may have to account for in our projections. But at this point of this game it’s still just an issue and we’re not doing anything with that cost.

And remember when I sent that email to our scheduler, well, since I’ve done that, he’s been working with superintendents, other stakeholders, to figure out what’s the potential schedule impact of this unforeseen site condition. And so, what we are able to do here is take a snapshot of our active schedule, which is the light pink activities that you see there, and create a variance report directly in the app that shows adding that new activity is going to potentially push out the rest of that Washington Street work, 18 days. So, it’s like a what if analysis that we’re able to print off, associate, or link to that issue that will be part of the package. We present the client as we execute the change order. But it gives you the ability to mess around, get your, like we said, a what if schedule. But that’s assuming that we know it’s a dead line.

What if we don’t know if it’s dead or if it’s live? At that point we might add a risk event. And so, in this example, we added a risk event for this DIP removal, because we don’t know if it’s live or dead yet at this point. And what’s that going to do the schedule? So, this takes us a step back into the risk side, but I think it’s important to note that even with uncertainty it can turn into risk once you realize that the issue at hand, we give you the ability to throw it into the risk register, run your Monte Carlo simulations even, I don’t know, Brad, if you wanted to touch on some of the other availabilities of this risk matrix?

Brad Barth:

Yeah. And that’s a great point, John. Something that might start off as an unforeseen uncertainty can certainly turn into something that you can model and that you can take a probabilistic approach and treat it as a risk. I noticed one of the questions that came in, why is scope change treated as uncertainty rather than risk? And my answer to that would be, I don’t think you can universally classify any type of change as one side or the other. So, for example, a scope change, if you’ve worked for a certain owner, a certain engineer, and you’re on the contractor side and you’ve got a long history of change orders coming perhaps in a certain type of work or in a certain discipline, maybe the earthwork quantities are always wrong so we’re expecting a change order, there’s going to be some additional scope added around that.

So, if you’ve got enough history of it and you’ve got something that you can run through a probabilistic model, then treat it as a risk. So, a scope change could be that. But a scope change that comes out of the blue that there was just no way to anticipate and there’s no historical data on which to model that, then the best we can do is handle it as an uncertainty. So, if it starts off as an uncertainty and then turns into something that now we know what it is and maybe that new scope maybe starts to get defined, to John’s point, maybe we understand better about the nature of it. Now let’s move that over to the left into the risk side of the ledger and put some data on it. So, one of the things you’re seeing here on this screen a little bit is, we could take that, whether it’s a new activity that’s been added to the schedule or an existing activity, and start to do your three point estimate on it in terms of let’s figure out what’s the min max or most likely on that risk.

And behind the scenes we can also score that risk in terms of what’s its likely impact on cost, what’s its likely impact on duration. So, as long as you’re doing that best practice, like we talked about, just continuing to add those things into your risk register and score them and associate them appropriately, what you’re seeing here is the platform itself can then do through that Monte Carlo analysis and through its risk calculations, it can come up with what is the likely impact on the cost and the schedule. And the nice thing about that is that it’s not just an opinion at that point. You’ve taken the data, you’ve fed that data into this machine, it’s done the simulations, it’s done the model, and here’s an answer that you can defend that stands up to scrutiny.

John Upton:

Yeah. Valid points, Brad. Appreciate it. So, now we are doing all this again. Real time, everything is connected. We need to reach out to the vendor, because we’re going to ask them to perform some work. So, while we were pricing out that change order, we have the ability to create a vendor change order as we call it. And with that, again, comes all the metadata that we’ve already attached to this issue with the RFI, drawings if the drawings are applicable. And we’re able to send this to our vendor through an automated workflow. And what that’s going to do is now within that contract for that sub, we have the ability to see, hey, if I’m a contract administrator responsible for this contract, I can see, hey, there’s a new line item that has a vendor change order against it with the price of $10,000. Nothing’s executed yet, so it’s still a vendor change order, it’s pending status, but I have complete visibility into all the details behind that.

And once we get all this information put together, then we’re going to go out to the client to execute this change order. But currently it’s still in the pending status. So, within our cost breakdown structure, we see that the issue cost is now transferred over to our pending budget cost. And what this allows us to do is we know that we’re going to have to do some work. So, what I’ve done in my CBS, or my cost breakdown structure, is I’ve created a custom forecast method that’s going to include that pending budget as my EAC forecast. And this just gives you more visibility earlier, sooner than later, to update your financial projections so that you’re not getting a major swing at the end of the month, or at the end of the quarter. We’re able to project this cost in our forecast before the change order is executed. And there’s pros and cons to that. Some business units are very strict in how they handle that, some are a little more loose. But this is an opportunity to include that before it’s actually executed.

And with all this stuff being interconnected, the RFI, the pictures, the drawings, the price, the schedule, all of that’s automatically associated as a supporting document to this change order that we can now send through a workflow to the client and have them approve with an electronic signature, DocuSign, all seamless, all connected and hopefully in a timely manner. And last but not least, we have to obviously update our budgets and our forecast. And if I come back to that contract now I can see that my commitment is increased by $10,000. I have a new line item on my purchase order. And since the pending budget has now been approved, I actually have that available as current budget, or budget at completion, that I can then use to forecast as I would as the project progresses, just like any of the other operations.

I guess one thing I didn’t really mention is, we’ve been focusing a lot on cost, but the revenue aspect of this change is also captured, both pre-approval and post-approval so that you can use that unapproved revenue. And we call them revenue categories, how realistic is it that this change order is going to be signed, to utilize in your revenue forecast. And then obviously once that change order is executed, the full amount of that change order will be included in your revenue forecast as well. So, as you can see, I hope we’ve been able to highlight how a connected platform enables a timely collaborative communication that helps mitigate the chaos that we call uncertainty.

Brad Barth:

John, before we keep going, I noticed one of the, you kind of touched on it a little bit, but one of the questions we got was, do subs and owners interact with this data, or is this designed for prime self-performing contractors? You want to talk a little bit about that multi-stakeholder collaboration that-

John Upton:

Yeah. My answer would be everybody is touching this data. We talked about the vendor change order and being able to have them price up their scope of work, going back to the schedule where you can invite the subcontractor to actually mark up the schedule in that what if scenario. We have a feature that we call the markup feature where all stakeholders can provide their feedback on what’s the risks associated with this work, what’s the duration? And that can all get compiled cumulatively to analyze, based on all the stakeholders recommendations, what do we really think the impact of this issue is going to be on the activity. Same with the owner, the RFIs, the change orders, even going way back to the beginning step, notifying that client as early as we possibly can, hey, we have an issue, with that automated daily plan report going to the client rep so they can get things started on their side. I think this touches all aspects. It’s not just meant for the self-perform, but all stakeholders on the project. Do you have anything to add on that, Brad?

Brad Barth:

Well, and again, I would assume one of the benefits of that is, by getting everybody onto the same platform you’ve got audit trails, you’ve got correspondence going back and forth you can look through, as opposed to a lot of that happening on the side through emails, through phone calls. You’ve got that traceability, which is important obviously when we’re dealing with changes and change orders if we end up in disputes and then court and all that fun stuff, having all that background and those audit trails is super handy.

John Upton:

Yeah. Auditability, that’s a good point. That’s key in all of this, making sure all your ducks are in alignment and you have all the correspondence in one location that you don’t have to go search through SharePoint sites or somebody’s desktop versus another. So, that auditability is a big key. And we don’t really touch on it here, but every one of these actions is also tracked in an audit log so you can see who’s doing what when, and also the result of these changes. If a budget increased, who approved that budget, when, what was the before and after values. So, traceability is also a key component of this process.

Brad Barth:

I think it also sets the stage for, I’d be curious to get your take on this, John, but sets the stage for how AI can help too. There’s a lot of interest in AI given the general developments in that tech over the last couple of years. Certainly we use AI already inside of InEight when it comes to things like risk. We can surface risk from your as-build schedules in the past, now we’ve got that same scope new project, the AI can go back and look at what risks have we experienced on that same scope on prior projects, what’s a logical sequence of the work to do your fragments in your schedule.

So, there’s a lot of things that we’re doing with AI, but certainly the key of, and this is one of the questions that came in, the reason I’m focused on this, what potential does AI have today to support risk management? What does the future look like for AI? And I think the short answer to that is it looks very bright. We’ve got the ability to leverage technology that was only a dream even just a few years ago in two ways. So, we can use that artificial intelligence and machine learning to surface things that we as humans either don’t have time to do or we can’t, there’s too much data so trying to interpret it becomes challenging. AI can cut through that noise and surface things that are really meaningful.

But also, I think there’s an opportunity here for AI to help open up a platform like the one that John’s talking about here, where people on the project team can interact with this data, ask questions, get answers without having to be experts in the system. I think a lot of the, even the scheduling systems and the risk management systems that are out there today are complex, hard to use. There are specialists that use them. Part of what InEight is trying to do is open that up, make it more accessible so you can talk to the system in natural language and that kind of stuff. But all of that depends on having good data. Let’s just stay on that AI topic here for a second, John, where do you see it? You interact with a lot of customers.

John Upton:

Yeah. The topic of clean data I think is the key component. I think, like you said, I think the future is bright, but junk data in, junk data out. And I think a good standard process and a way to tag or, I guess tag isn’t the word, because we use a benchmarking. We have a benchmarking feature where we group work with a special account code or a chart of accounts. And if you’re tagging work consistently, the system can compile all that information and tell you based on this scope of work, change orders are X, Y, Z likely, or this percent likely. And the cost impact or schedule impact based on all the data from across your organization could be compiled to give you some output that, like you said, you don’t have to be a genius in any of these one applications. The system can tell you, hey, based on past performance and across all the jobs, if you have it organized in a way that can be analytically processed, the system can do a lot of neat things for you and take a lot of the guesswork out.

Obviously there will always be a human component to it, making sure you’re tracking work consistently across the organization, which requires pretty stringent business processes. But I think if you can follow or adhere to that, I think there’s a lot of benefit that can come from AI and the way that we can realize the, can’t really say the likelihood of uncertainty because that’s more of a risk, but it could definitely help you in the longterm with managing and planning for that uncertainty.

Brad Barth:

Well, and that opportunity, staying on the AI subject here, I see a couple of questions on that, the opportunity to leverage the advancements in AI tech. Part of that’s what’s leading, we all see the trend, InEight is not the only one going down this integrated project controls platform, there’s a number of companies that are doing that. And one of the reasons is that if we are going to unlock the value of that data using AI, think about it, it’s just near impossible if not impossible to do that if we’ve got some of our data over here in spreadsheets, some of it’s over here in a third party system, some of it’s over here in the ERP system and maybe all that stuff, even if technically you mash it all together, it’s probably not of the same context, the same granularity, the same timeliness.

So, that promise of AI, which again depends on good, clean, consistent data, I think is what’s driving this migration from these point solutions to these integrated platforms. So, I think that’s something to think about as well. A lot of times we think, well, we’ve got an estimation, we’ve got a scheduling system, we’ve got a work planning system, so we got those covered. And that’s probably true. You’re probably doing a great job with those things and getting the job done. But some of these larger, more impactful opportunities that are in front of us as an industry, I think require that integrated data to really take it to the next level. Let’s go onto the next one there, John, and then we will start to wrap up and then we’ll jump into some more questions.

So, I think we’re through the part of the content that we wanted to cover. We’ll spend some time going through some questions here, but hopefully the key takeaways here are the difference between risk and uncertainty. And again, as I said before, I don’t think you can necessarily take any type of a change and automatically categorize it one way or the other. You’ve got to look at it on the risk side of it, do we have historical data, can we model it, can we take a probabilistic approach no matter what it is? If the answer is yes, then let’s treat it like a risk. If the answer is no, then it’s an unforeseen uncertainty.

And then best practices for managing the different types of risks. We spend a little bit of time on the risk side of it, most of our time on the uncertainty side of that. And as you saw from John’s walkthrough there, I think a good part of those best practices relative to uncertainties is around making sure we’ve got our arms around the data, make sure we’ve got our arms around the process, good communication across that whole workflow from the time we identify that change or that uncertainty to the time we’ve taken it all the way through perhaps to an approved change order that’s priced out and signed off on.

And then lastly, a connected platform. And that’s what you’re seeing here. So, I want to just make people aware, there’s a website called learn.ineight.com, and this is not just for InEight customers or users of the InEight software. There’s a lot of great information there about the software itself, but there’s also just a lot of great, let’s think of it as industry information. So, we’ve been talking about changes here and how do you deal with them. One of the, if you look over to the left there in the top left at learn.ineight.com, this is open to everybody. So, anybody that’s watching this can go out to that learn.ineight.com.

And you can see some of those overarching business processes like subcontractor management, earned value management, change order management, those things touch a lot of different kinds of data, a lot of different stakeholders. And so, here’s a great bit when we talk just about change orders, if you want to use this for reference or in your own work, there’s videos, there’s workflows, there’s what different roles come into play from the time, you can see down there in the lower left, from the time we create an issue all the way through that process that John walked through. So, aside from the recording of this session that you could refer back to, that information that’s at learn.ineight, there is a great reference as well. What do you think, John? Should we take some questions?

John Upton:

Yeah, that’s fine. Let’s do it.

Brad Barth:

Let’s see. Let me look through the list here, and maybe I’ll throw one at you here.

John Upton:

We can answer some quick ones. Do we have DOT owners as customers? Yes.

Brad Barth:

Yes, we do.

John Upton:

And it is related to the ERP, so we do have integrations to many ERPs.

Brad Barth:

Yeah. Integration is key. Making sure that all of this that you’ve seen here can integrate with your existing systems or other systems that you have to use. Here’s an interesting one, John, from your prior experience in the industry. Why do large construction companies have such small net profits? What’s your thought on that one?

John Upton:

That’s a loaded question. Poor risk management.

Brad Barth:

Certainly that can eat away at it, right? You start off with a profit pot and as changes get away from you, or they’re not managed properly, that cuts into that profit.

John Upton:

Yeah. The list is too big. I don’t know where to start.

Brad Barth:

Forces are conspiring against you from the first day of the project, right?

John Upton:

Yeah. But I honestly do think a lot of it has to do with uncertainty and risk. I also think a lot of it has to do with disjointed systems, not getting timely data, being more reactive than proactive just because you don’t have the ability to look ahead, you’re more focused on the past, which is never a good thing. You’ve got to learn from your mistakes, but if you’re focused in the past and you’re not making the necessary adjustments proactively to right the ship, and usually people aren’t aware of that until it’s too late. And then with that comes quality, safety issues, because trying to throw a bunch of resources to catch up. And I think poor planning is a big component of that. But like I said, there’s lots of…

Brad Barth:

Yeah. I’ll chime in on that last one. I think one of the things I see when I look at our customers, there’s definitely the bucket of those that manage this kind of chaos really well. And then there’s those that don’t. And I think one of the differences is that contingency planning. So, it’s one thing to be ready when a change comes at you and be ready to react. It’s another thing to already have those sorts of contingency plans in place and a plan B and a plan C that you can easily move to.

So, I think that, to your point, John, about the planning, we often lament the fact that only half of the projects that our industry delivers are on time and on schedule. We tend to blame what happens in the field and everything after execution starts as the reason for that. But I think more often than not, it’s poor planning. We haven’t planned, whether it’s cost planning or schedule planning, we haven’t done an accurate enough job setting expectations in the first place. And then, like you said, John, when things do inevitably go awry, now we’re scrambling to catch up and that has a ripple effect. One of the other questions in here that I thought was really interesting, where did it go here? Talk about this one, John. Where do you see InEight on their journey toward data integration between products? A lot of software companies say they have solved it, but they still have a long way to go. You’ve lived through this, in the early days of InEight.

John Upton:

Yeah.

Brad Barth:

Where do you think InEight is at on that?

John Upton:

Right now I would say we are well on our way. I think we listed out a hundred some integrations that we wanted to complete across different business processes. And I would say we’re 95% of the way there. Obviously we’re not 100% of the way there, but we do have the plan to tie [inaudible 00:54:11] I saw a couple of things. Do you have one-way, two-way communication with project Primavera? Yes, we do, but we want to push the focus to our scheduling platform as we think it does a lot of really neat things that some of those other scheduling tools don’t do.

And with the integration components, bringing all that data together and not having to rely on exports, imports, data manipulation to get between the two systems, I think these integrations that we’re building are seamless and robust, and I think we’re well on our way. We have numerous integrations as you could see on those screenshots, capturing something in the field to an issue log, over to an RFI, to the document management solution, real time updates of cost and budget fluctuations, pricing stuff out, automated workflows. And then we also have, like we mentioned earlier, the integrations with the ERPs or other scheduling software. So, I think we’re well on our way. What are your [inaudible 00:55:28]?

Brad Barth:

One other one. We’ve got the question here in terms of is the InEight suite and using this integrated approach, I lost sight of the question here, but I’m paraphrasing, but it was basically, is it only for large companies or does it make sense for mid-size organizations as well?

John Upton:

Yeah. It’s definitely not just for large companies. So, we do have, like we mentioned, the integrations with the ERP. We have a lot of customers that don’t tie ERP integrations to the software, but we allow you to keep the data all in-house, whether that’s claiming time in the field and having that generate estimated actual so you’re not relying on payroll costs that maybe happen every two weeks so that you can get up-to-date actuals. We call them estimated actuals, without ever having to do an import of anything from a payroll system. Or as you do a GR, or a payment claim, or payment form against the contract, those values can automatically go update your forecast without any reliance on any external system. There’s numerous spots within our application that are all self-sufficient and don’t rely on any fancy APIs or integrations that a lot of smaller companies might not be able to afford, or have the technological know-how to set those up. So, I think our application is for large and mid-size companies across the board.

Brad Barth:

One other one. I’m going to combine a couple of questions we got, but there’s a few questions around that I think are really talking about the planning process in general where you often have these, again, these silos where maybe the CPM scheduler is working in a silo, creating that master schedule, but then you have maybe the field team is creating their work packs and looking at short interval plans that may be sketched out on the whiteboard, or in an Excel spreadsheet.

So, the questions are more along the lines of, I think the gist of it is, how do you solve that problem? Because there’s often a disconnect there between the schedule that’s hanging on the wall with what’s really going on. And I think that’s part of what that integration that we’ve done, right John, in terms of you can do that CPM schedule inside of the InEight tool and or read it from P6 or Microsoft Project. But the beauty of it from there is now you can tie your short interval plan where you’re dragging and dropping what are we doing on Friday, what are we doing on Monday, what’s the sub doing on Tuesday. You can do all that in the context of the CPM schedule, right?

John Upton:

100%. Yeah. So, way back in the day we had those three week, four week look aheads on big whiteboards across the trailer and we’d do our updates, and then the scheduler would have to come in and go manually type in his updates against the CPM schedule. But with our short interval planning you can have context from a work package into your short interval plan that you can plan out against your CPM schedule and see as tasks shift, does that affect your CPM? And if so, click of a button, you can update your CPM based on those adjustments. And there’s a lot more that goes into that. But having that integrated platform really helps along the lines of the planning phase and making sure your short interval plan is in context to your CPM and making sure they’re in alignment, I guess.

Brad Barth:

Perfect. Well, I think we’re right at time here, so maybe just go to that last slide there and while he’s bringing that up I want to thank everybody for attending today. Hopefully this was valuable for you all. I also want to thank AACE for giving us this opportunity to speak with you all today and the great work that AACE does in our industry. So, kudos to everyone at AACE for making this possible. We’d love for you to take a photo of that barcode, scan that barcode and do a quick survey. We’d love feedback, whether it’s on our products or sessions like this. We always love that feedback. So, John, thank you very much for the great insight here and taking us through how to deal with the uncertainty in project controls and how to master that.

John Upton:

Thank you.

Brad Barth:

Thank you very much. And again, thank you to everybody out there for listening. Have a great rest of your day.

John Upton:

Thanks everybody.

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