7 Capital Project Budget Building Techniques That can be Applied to Any Project

 
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Projects can be set up in a way which will work, but with a lot of difficulties, or they can be set up in a way that makes life much easier - just like driving on a dirt road compared to driving on a paved road. You will still get there in the end, but the paved road is more comfortable, safer and more efficient. Work conducted during the earlier phases of a project must be done with this notion in mind. 

The initiation phase of the project process is definitely a hairpin bend and must be taken slowly. During initiation, the follow-up phases such as execution must always be at the forefront of one's mind. The feasibility work must be done in such a way as to attempt to prevent as many pit-stops as possible during the execution phase.

A pit stop costs the project time and money due to changes that potentially need to be made to the schedule, budget, cash flow, ROI, project risk profile and other important aspects of the project. Managing these changes will also take the attention of the execution team away from construction. This in itself is very risky.

Grouping or packaging as it is more commonly known, if not done with project strategy in the forefront of the team’s mind, can lead to additional administrative work at times when the team can least afford it, forcing a pit-stop.

The package dictionary is one of a project's foundation stones. It will be used daily by everyone involved in managing and executing the project. Define the packages in a sub-standard way and the project will suffer. 

In this article, I will offer a few pointers on how to group the items contained in the budget.

I have a few rules which I follow when packaging a large budget:

  1. A deliverable can contain multiple packages, but a package can never be split over more than a single deliverable.
  2. Packaging is a team effort with all project role players taking part.
  3. Every package must be assigned a champion who is accountable for the delivery and management of that package.
  4. Package types MUST be defined before packaging commences.

In addition to my basic rules - the following should be taken into consideration:

1. Package items based on package types.

  • This is one of my most important rules: How can a package be budgeted if the bases of packaging are not known? Sadly, packaging often happens without package type definitions.
  • Project stakeholders, including procurement, must define the types of packages the project will have before the budget can be packaged
  • Some types include, but are not limited to:
    • Hardware or Software purchasing
    • Functional Area Professional Services
    • Requirements development based payment
    • Turnkey (with/without design)
    • etc.
  • If there are no package type definitions do not continue with packaging. Sit with the team and define the package types. This will prevent future pit stops and save time later in the project.

2. Keep the packages small, but no smaller than they need to be.

  • It is far easier to add or remove scope when the packages are small. 
  • I have worked on projects (that I did not set up) where packages were extremely large. When the major contractor's contract was shortened it was a major undertaking to establish what work had been completed. Having smaller packages lumped into that order would have saved a lot of time.
  • It's easier to keep track of small packages from a quality control point of view.
  • Smaller packages make Earned Value (EV) Reporting easier and more accurate.

3. Assign a champion for the package.

  • The champion should be a person that knows the work contained in the package very well.
  • The champion is the custodian of everything relating to that package and the person that should be asked for information relating to the package - all too often when people have queries it takes a while to get the correct information, and even then, how do you know the information is correct? Ask the package champion and all information will come from a single source.

4. Packaging and Scheduling.

  • The schedule must be created based on how the budget is packaged to ensure that cashflow is aligned with the progress.
  • Packages related or associated with each other must be identified and noted in both the schedule and the package dictionary.

5. One item may belong in several packages.

  • A free-issued item will need to be bought, installed and commissioned. These activities are not necessarily in the same package.
  • Depending on the package naming strategy chosen, a package can have several parts / phases:
    • Layout / Design
    • Procurement
    • Expediting
    • Construction and management
    • Commissioning
    • etc.

6. Packages should be created to reduce the number of contractor interfaces.

  • An interface requires management and the potential to generate claims.
  • In my junior days as a project engineer, the project manager decided to free-issue all mechanical fasteners to the erection contractor. Yes, this saved a little cost in the way of a handling fee, however the expense of an engineer chasing after fasteners when the contractor claimed to have run out was never considered. Neither was the time required for the procurement and expediting. Those fasteners became some of the costliest pieces of the project!
  • A good example of this is items like bolts or gaskets being forgotten about and omitted when piping is free-issued to an installation contractor for a pipeline leading to a pit stop to amend the order - pit stops mean lost time. Some companies can take over a week to sign an amendment, others can take longer!
  • It would have been easier and more efficient to ask the installation contractor to supply all materials as part of the contract, eliminating the interface and risk.
  • Rule of thumb: Make the supply of an item the responsibility of the "person" that has the most to gain by that item.

7. Risk asses the package strategy of all packages. This must be done during the packaging process as well as once all items have been packaged and the relationships between the packages identified.

In closing, The packaging process will involve several passes - it will not be right on the first attempt. All packages are interconnected. Some of these connections are not immediately evident. As a result, the packaging process is an iterative one. A word of caution: This process does have the potential of getting stuck in the analysis paralysis cycle, so be aware.

What methods have you used to package a budget? Please comment below and let me know of your experiences life is too short to learn only through our own experiences, please share some of yours so that we can all learn together.

Should you have further questions or would like to know more about what is written above, please feel free to contact me via inbox or comment below.


About the Author: James Keir (PMP) has over 15 years’ experience in multi discipline construction projects. He has worked as an engineer and project manager on the design on construction team as well as on the client/employer project executive team. James has helped increase efficiencies and save time on several projects by implementing his systematic approach to projects.