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