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I remember a little snippet my grandfather cut out of a magazine from the 80s on a revised version of murphy's law that stated one of the 'revised laws' as "a carelessly planned project will take 3 times as long to complete. a carefully planned project will only take twice as long to complete."
I always assumed that companies that estimate costs would vary above and below the actual cost. But since the lowest bidder usually wins, it'll always be one of the under estimates.
You are correct, projects that take years to complete, there is always inflationary costs that are commonly missed in the bid. For example: Over a ten year span there can be between 10% to 30% increase in the cost of the job simply because of the time it takes to complete. That isn't counting the unforeseen issues that may arise during the project. Just between those two issues, that could lead to an increase of more than 50%.
There's an important aspect of this problem that was missed by this video: If you come in with a realistic, expensive bid, you simply will not win the project, if every other firm is coming in with a lower price. The entire industry is financially incentivized to under-estimate. When I was going through engineering school, we had a series of lectures specifically about the problem of cost overruns in the engineering and construction industry. The simple truth was that, for projects of the same type and scale, firms that came in with higher, more conservative bids, simply did not not win the RFP (request for proposal) bid. They lost the project to the companies that came back with lower prices, EVEN THOUGH all of those companies then went on to experience cost overruns that were GREATER than the original high bid. The data was so tightly correlated, it almost looked fake: the higher the original estimate, the lower the cost of the project in the end, while the lower the estimate, the higher the cost in the end. Like you said, Underestimating ends up costing more than the cost it takes to develop a more accurate estimate.... But all the companies who do, lose out to those with a lower bid. The whole RFP and bidding process that defines the industry is to blame. It incentivizes a race to the bottom in terms of estimate pricing.
It's sad to hear that this is also happening in the engineering industry... our world has changed. Truth is even when we plan our home grocery trips for next week..we have to keep in mind that it may be a little more expensive.
I think this is a big factor. At one defense company I showed statistics for hundreds of proposals and showed the true cost was consistently about 180% the proposed estimate. The reality is if a company started adding a 1.8X cost multiplier for "accuracy" in the proposal stage they would be bankrupt by the end of the year. There is a psychological block at the level of non-technical managers that prevents realistic bids at the outset.
"You should be more like Jenkins, his estimates are always reasonable." "Why don't you have him do the project, then?" "He always overruns for some reason!"
And when a politician signs on to support one, they get voted out of office. Any Bostonian today would tell you the big dig was worth it, but tell them how much it actually cost before it happened and the whole local govt would turn over when the taxpayers revolt
It’s like this in real estate sales too if you come in with a realistic number you’re almost guaranteed to not get the listing and sellers will say you’re slimy and just trying to get a quick sale. That’s why a lot of agents give them the number they want then call a week later saying we need to lower the price.
My favorite engineering estimation joke goes something like this. There's a project manager who's projects are always on time and under budget. When someone asks him what his secret is he tells them that he goes to the best three engineers and gets an estimate from each one. The person asking the question then says, "and then you average them?" And the project manager says, "no, I add them up." I'm pretty sure I've never estimated a project correctly.
As someone that does construction estimating for a living I loved this video. Everyday is a constant battle to ride the fine line of expensive enough to make money but not too expensive to not get the job. When is really scary is when you intentionally price something too high so you won't get it but you end up getting it, you get really nervous that you missed something big!
@@freeffree4133 because it is not always my choice. The salesman who works on commission wants us to bid everything and some times it is not in the best interest to do certain jobs so we quote it to keep the salesman happy. Then there are times when we tell the customer it isn't a good fit for us but they still ask us to quote it so we make it worth our while if we get it.
@@freeffree4133 As a courtesy if you have a good relationship with them and if you bid high and are awarded you have enough money for your "B" team to do the work or make $$ with your "A" team.
@@freeffree4133 In addition to what the other guy said, if you decline to price work for people, they won't think they can count on you when they really need a number.
I have a short story. At my last job we had to estimate the cost of a project and give our plans. My plan cost 3.5 million dollars up front with no annual costs and would take 18 months to implement. The other project had 1 million up front, half a million annual, and would take 3 months to set up. They opted against my plan. The plan they opted for ended up costing 7 million up front, took 48 months to implement, and has annual fees of 2.5 million. Yikes!
@@VineFynn bc my system is a tested true system with years of experience behind it and I had people who have used and installed it for decades and a guy on my team invented it and knew exactly how it works. and their system was some proprietary thing. mine was plug and play, a known known.
@@Melthornalwhat do you put it down to? that the customers were ignorant of the benefit of your method or that they'd already chosen the contractor who got the contract but had to do "an open call" for bids because of the company's rules....or something else I didn't think of? thx Mel ❤
There's always something a little ridiculous about budgets. Let's say you have a project in mind, and there's a 35% chance it costs $100k, 30% chance it costs $150k, 20% chance it costs $200k, and 15% chance it costs $300k, due to various possible contingencies during the project. If you wanted to provide a single number to the decision makers, you could give them the 'expected' cost of the project by multiplying and adding those together to get an Expected Cost of $165k, but if you've budgeted your contingencies properly, there's 0% chance it will cost $165k! And as Grady said, you can factor in inflation, but since the 2008 crash a lot of countries have implemented good governance regulations that outlaw back-of-the-napkin guesses since they can be used to nefarious effect. Speaking of nefarious, history has had more than a few cases of the underhanded Robert Moses tactic of "Tell them it'll cost 1/3 of what it will actually cost; then once a politician's staked their career on this project, you tell that politician they need to find the rest of the money or else the public will blame the failure of the project on them."
@Calen Crawford Edison actually brought about lots of useful things. Moses just wrecked NY City at the expense of solid neighborhoods and their residents. He referred to the people who protested being kicked out of their home as "animals who got stirred up". He is the quintessential urban central planner.
"The first 90% of the project takes 90% of the budget. The last 10% of the project takes the other 90% of the budget." That was the advice we gave clients when I worked as a Project/Program Manager for KPMG.
The first 90% of the project takes 90% of the budget, the next 90% of the remaining 10% takes another 90% of the budget, the next 90% of remaining after that takes another 90%, to infinity or until good enough.
I’m a retired construction superintendent who managed commercial building projects up to about $12 million (todays dollars about $20 million). The thing that drove me crazy was low bid was the deciding factor. My grandfather and father were also supers and in their day low bid and high bid were dismissed and the middle bidders were then analyzed for ability to perform. Near the end of my time general contractors I worked for would rush out to sign the lowest bidder before they had time to find their mistakes
I also don't understand the "lowest bidder gets the contract" approach. The people making the rules DO know that this lowest bidder will just bring cost overruns, right? And if there are penalties for cost overruns, then doesn't that max amount (before penalties kick in) just automatically "become part" of the bidder's bid?
And when the low bidder goes over budget and the budget doesn't get adjusted, the LLC will just be sent into bankruptcy - and the next shell ccompany will be incorporated for the next project. Contractors in big public projects never bear any risk, but they do keep the difference. It's a disgrace, honestly.
There's fraud in high bids as well, though. Going with the low bidder increases the likelihood of change orders, yes. But going with higher bidders will lead to contractors padding their budgets more.
My Superintendent on my project also told me that back in the day, government agencies used to accept low bids up to a certain point, meaning if they saw that a bid was way too low compared to the estimate (which they would not provide), then they would throw out that bid. I believe USACE still works this way… not sure.. And I agree with your comment. Today, bids are all about being the lowest and in a fast manner, not being able to catch your mistakes and getting burnt during the course of the project.
Practical Engineering has been turning my entire college curriculum in civil engineering into short video form. I’m so proud of the dedication over the years. 😊😊😊
Yep. Broader context is so helpful in learning what matters; then you go back and fill in the mathematics and physics required to attend to the daily business of engineering, and it's easier because you KNOW why you need to pay attention to this or that.
@@paintedwings74 I literally tried that exact tact going between bachelors and masters, but no one, literally no one I could find, would hire a non-masters structures graduate.
@@kindlin I'm not surprised. It seems like the entire industry clings to 1950's mentalities, to varying extent. I'd go around as an apprentice and talk with the other trades about what work we'd be doing in the same space, and get the most bizarre looks from my guys and theirs. What was so wrong with talking it over briefly to decide whose stuff needed to go in first, or how we could both occupy the same space at slightly different times, to avoid time delays? But it was unheard of--HVAC and plumbing must forever compete with electrical for the easiest installations! Whenever I came up with a time-saving way to get things done, I was met with silence; too smart, too female, too collaborative, and damnit, her way works. I suspect that way will become more normal in trades, because more people are entering trades later in life, no longer subject to acculturation into the 1950's old boys' club from 18 years onward. But when it comes to higher ed degree-based elitism, is there any hope? I don't know. I live in a university town. I don't even bother with the vast majority of environmentalists from that background, unless they've worked in jobs where they interact with hunters, fishers, and trappers. People need to get de-silo'd from their superiority complexes before they're able to listen to common sense advice.
@@paintedwings74 You definitely took this thread in a different tact, but I agree with you, mostly. Degree's are still good. I learned a lot, but it didn't help me be a better engineer.
The other thing worth mentioning is that there's almost always some kind of competitive bidding going on that provides an incentive for parties to underestimate costs. A bidder who bases their estimate on everything going perfectly is obviously going to have a lower bid than one that realistically considers the risks...
As an engineer turned builder, this is what I came to say. There's pressure on GCs to keep their bids competitive in order to get the job. Bit of a double edged sword that can be ironed out through contract qualifications and a more detailed Schedule of Values with bid packages
Company A underbids and gets 10 contracts. Company B does not underbid. The government still gives company A the 11th contract. There is no incentive to be honest, and 0 credit is ever given for being on time or under cost. If you are $1 under on a bid you win.
A simple fix would be to cap the amount a bid can be off to 10%. Off more than that, and the company has to pay the costs, even if it causes the company to go bankrupt.
This is the most painfully relevant video Grady has put out. I found myself laughing and crying and pausing to shout “YES Somebody Said It!” I’m also an engineer who has wildly underestimated costs based on only conceptual designs and a site walk through…The secret is to write everything down and document every decision.
Even if you've got everything right, realistically and accurately, there's always scope diffusion while the project is underway, to fundamentally muck it all up beyond recovery.
This is true for most projects - pulling Network cable, websites, design jobs, catering. You name it. Plus bidding low to get the job in the first place.
If it's early enough in the planning, in addition to the base estimate, it's worth adding a high end estimate and disclaimers of the assumptions used for the base cost estimate. High end estimates are common with contractors who are asked about expected cost prior to doing a time and material job. When you estimate high and come in under budget everyone is happy. Having the two numbers would be good for engineering firms because everyone would be expecting the possibility of the higher number but be shooting for a design that minimizes the cost to as close to the lower value as you can get.
I worked on designing temporary support structures for the Big Dig. They deliberately under estimated the project so that they could get it through the legislature. Previously, as a town engineer, I designed and ran my own small bridge replacements. I did them for less than 1/3 of what the DOT estimated and only took 3 months to replace the bridges. I started construction the day after the last school bus went over in June and had it open again before school started. Consultants complained that I was denying them work so the DOT banned me from doing bridges. All of a sudden, large bridge projects that I estimated at $500,000, became $3,000,000. I'm now glad that happened because it was just before chinesium started taking over and causing problems. A very good and thorough video. Yeah, the idiots don't understand that construction escalates at a much higher rate than the government estimates inflation. When I was a combat engineer bridge builder we were taught to add 25% for losses, on our estimates. I carried that over into my civilian estimating. I hope that young engineers are watching your videos. Good Luck, Rick
I ran into issues of the nature doing IT for a US state government. State laws required we contract out a lot of work despite having the capability in-house. My all time favorite was for a campus portal project of a major public university where parts were contracted, months later the contractor said they could not deliver, we wrote it in-house, and when the auditor (same company as the contractor previously mentioned) reviewed the service they failed it declaring "we can do it better."
Examples like this is exactly why I think the US is going to fail as a country. It's system of governance is rotten with bureaucracy & special interest groups. It is squandering public funds & being inefficient with its resources. Taxes must be raised to accomplish the exact same thing & it becomes a less competitive business environment. People rightfully think "I'm not getting what I pay for" & move their businesses overseas where the grass is greener & taxes are lower. It's a shame, personally I don't think some big super power will outright replace the US, rather regional powers will rise & decrease America's share of global influence. It's a shame that countries like China & India will control the world in the future...
This is what I always figured had happened. Everyone knew it was needed but also knew no one would vote for it if they knew what it would cost so they low balled it to get it started and then slowly asked for more money as time went on. Easier to ask for forgiveness than permission as they say.
I've worked on projects that had to be rerouted multiple times because we kept finding things during the environmental survey, but it's better than not doing the survey and finding human remains in a front loader. There's so many old, abandoned, and unrecorded cemeteries in the US that sometimes we were the first people to see them in a hundred years.
We have one of the largest civil engineering earth-moving projects in the western hemisphere located here in eastern Kentucky. The Pikeville Cut-Through moved 18,000,000 lbs of soil (the Big Dig moved 15m), rerouted the major highway, rerouted the railroad tracks, and moved the route of the river. Additionally, it created 390 acres of usable land for downtown development. It was completed in 1987 at a cost of $77 million.
Speaking of miliary costs. True story. My buddy in the army told me about how everytime they go out for training that the squad uses all the ammo regardless if it's for the actual training. The paperwork to put back ammo is longer form than to take it out. One time they blew up a whole box of grenades because it was easier than to return it. This happens every single time for everyone. Probably half the military budget is just wasted because the paperwork is a pain.
It's the same with health and safety paperwork. A guy cuts his finger open and then spends hours in interviews with H&S reps while they fill out the paperwork about how it happened and which machine it was. This is why so many employees hide an injury to avoid paperwork.
@@caravanlifenzI do this all the time. Safety paperwork is a horrible, tedious, waste of time. Whoever is out there pushing more and more invasive standards probably had their heart in the right place at one point, but it is now outrageous in both cost and inefficiency.
Consider how much it costs The paperwork almost costs nothing compared to the waste Hideousness of people morals And reward of waste Communism always produces this - institutions that steal and force themselves to be the only one who can Hense no reason to be honest
A lot of these sorts of systems seem tedious or over-complicated because they have to apply to an enormous variety of edge cases. Sure, 99% of the time all that extra work is unnecessary, but all of those regulations have to be in place for the 1% of the time when it does matter.
I learned this lesson the hard way when building a bed frame for a customer, did everything I could to properly estimate the cost including calling the lumber yard and getting the most up to date price. I get the customer to confirm the project about a week later go to pick up the lumber and now the lumber prices are up by a third and the "saftey" money I had calculated into the project wasn't even enough to cover the diffrence. I can't imagine trying to plan 10 year infrasturcture project because there it literally no way to know what something is going to cost a week from now, let alone 10 year!
I suspect that large contracts have pros and cons that apply vs your example, such as bulk discounts (pro) and need to source a large volume of material that the local market may not have handy (con)
@@jliller COVID-shutdown related shortages combined with people forced to stay home and deciding to tackle home reno projects played havoc with lumber prices in 2020-2022. The cost of a sheet of plywood doubled in certain areas over a very short period of time.
Grady, thanks for putting this issue in perspective. I once managed an environmental remediation project which I estimated to be $850k. At about the $700k figure I warned the client that the final cost would probably break $1m based on field work to-date. The final cost of the project ended up ~$1.2m. Thankfully, my client had the ability to fund the project to completion. I, however, felt very bad that my initial estimate was so inadequate.
Ditto what cr01 said: if you ever give advice to other people in your field putting in bids for remediation, share that story and tell them all: warn your clients up front that any bid you give them can quickly multiply, because "environment" means in this case "wild," and wild "beasts" aka remediation projects are so unpredictable, there is no knowing if they're going to bolt off in a direction you couldn't have predicted. Then sit down and do the estimate the best you can, and run a few scenarios of "if the beast bolts in this direction, added costs might look like this, as an example, but only an example".
I’d be interested in a series where you detail every step of the construction project from planning to execution. What actually is going on when engineers plan a design? How are those plans executed by contractors? Etc…
There are 5 major phases of construction - site prep, framing, rough in, finishing, and Inspection / commissioning. Note this is more of a building construction, like homes and offices, not infrastructure construction like roads or bridges. Some of these phases may still overlap a great deal however. Site prep is the part where they level out the field, knock down the trees, and dig out the foundation. Underground service entries are also installed at this time, even as the service won't be connected to the local grid / system for quite a long time. The site started as an empty field, and ended as a poured foundation in this phase Framing is the part where the structure starts gaining its... well... structure. Walls go up, and the building starts to look like a building. At least from the outside. Rough in is when MEP trades run around and install all the fun things in the walls, like duct work, water and sanitation pipes, and the wires and boxes that make up the buildings heating, plumbing, and electrical systems. When you think "busy construction site" you're thinking of rough in. This phase ends with all interior walls drywalled, mudded, sanded and painted. Finishing is installing all the things you didn't want to risk getting scratched or damaged during construction. It's installing receptacles, faucets, toilets, light fixtures, and all the devices and appliances you'll expect to be installed in a building. It starts as a building that looks almost done to a building that is done. Finally, commissioning is when the building is turned over to its owner, and the owner can (and definitely does and should) test, inspect, point out deficiencies, and request changes before the new owner actually takes ownership
@@Mr.Sparks.173 That is all preceded by several rounds of: Env. impact Assessment, Endangered Species verifications, permitting and site prep requirements, etc... It can take years before as single shovel full of dirt is ever moved. Our NPDES discharge permit was required to be renewed every 5 years. We started the process in year 2 just to be sure we could complete it in time. It was an ongoing process.
@Jim Murphy definitely, nothing I said applies to pre-construction planning and design, which as both the video and yourself have stated is almost as long (if not longer) and as complicated as the actual construction phase. Its just I'm an electrician, I'm quite familiar with the construction phase, but I don't know much about the pre-construction phase (our contributions is time and cost estimates in the form of a bid, which happens closer to the time to break earth than the projects start).
"detail every step of the construction project from planning to execution" - that's basically detailing thousands of people's jobs for dozens (or hundreds) of companies, for several years. There are very few people even in active large projects that grasp every single detail. If you're interested in these details, the best way to learn is to start working in the field of construction engineering.
Wow this was so cathartic for me. I’m a software engineer and we have a huge problem with project estimates. The funny thing is, we tend to say this isn’t construction and therefore it’s much difficult to estimate something that’s never been done before. But it’s reassuring to know that even construction has a similar problem
Budgeting any big project is tough. You’re trying to predict thousands or millions of labor hours. I do it for features films, which can range from under $1M to over $100M, and it’s a best educated guess.
With software engineering, you can limit the effects of budget overrun by using the agile methodology. You can't really get away with something like that for construction.
@@Upload098765432 Actually ... yeah that is actually a very good point. The one thing that's limiting about Agile is that it doesn't really take the company as a whole right? Like, it assumes Engineering lived in a vacuume. Sales needs to know when a feature is being delivered. Marketing needs to prepare for a product launch. Management needs to know how much overall effort is something going to take and whether it's worth investing in a major product. But at least we have a lot more flexibility that a construction project.
There are a lot of incentives to under-estimate and not a lot to over-estimate. There is also the fact that it is easy to forget about something that adds costs but you rarely forget about something that lowers the cost.
Ive been in the bidding process on the contractor side. Bidding low just isnt an option because you are locked into that number unless a change order is issued. Your bid has to be low-ish to get the job but cant be so low as to lose money completing the job. (Sometimes that is done for new customers to showcase speed, quality, etc and basically get your foot in the door but i digress.) There is so SO much that goes into bidding a job that it makes my head spin. From the price of steel, to concrete, to welding (and where that welding will take place), to equipment and rentals, permits, shipping (if not built on site) and so so much more.
Hey! Thanks for not forgetting about surveyors! Everyone else seems to lol I have literally had contractors ask for a cheaper price because they "forgot to carry survey costs in their bid". This was a multi-billion dollar building construction!!
My brother does HVAC and he's working on a huge hotel/luxury residency, etc... that building has been flooded 3 times from the folks doing the piping and its racking up tens of millions of dollars each time.
15:30 This was my only real takeaway in project management class: Don't be fooled by low costs at the start of the project (=the planning process). Make sure you spend a lot of money there.
Civil Design Engineer here. I think it would do a world of good if civil design/project engineers actually had experience working at a construction site. There have been times during a design review where my manager asked me “How are they going to build this particular piece of the alignment?” I kinda shrug my shoulders and point out the reasons why I made that particular design choice and he usually agrees, but we always come back to how a contractor will build it. It really is my weakest part of my engineering knowledge. To all the future civil engineers, please do an internship with a contractor and learn from them. It will save you time in the future and imho, will be well worth it.
Contractor here, I've had this issue with architects/ engineers where I literally have to be correcting their works. It all looks good on paper or CAD but not realistic in the practical.
Sometimes it’s as simple as the access to work and challenges to maneuver efficiently as it relates to adjacent obstacles! This can look like, limited space to erect scaffolding or removing souls literally by shovels and 5 gallon buckets! This comes with experience working “in the mudd” that non-hands-on contributors wouldn’t have the foresight to anticipate. All these factors add time, creativity, and labor intensity which are equivalent to money, 💰and 💸!!
In Australia, you can do an electrical apprenticeship (4 years of working under a qualified electrician and attending trade school) and then the government lets you complete an electrical engineering degree in half the time because of your work experience. That way, the engineer actually does know what it's like to be the electrician doing the work.
As a project engineer in Solar Rooftop business where most projects are just cookie cutter of another one and there's a lot less complexity compared to construction. My team still runs into overbudgeting issue as no roof is the same, and clients are very diverse. And the bean counters wants us to underestimate as lower cost usually gets the contract. It's a never ending cycle.
The entire concept of lowest bid gets the job is sketch. When I get some bids from a few contractors for a house project (I'm pretty handy, but some things I don't do), I will literally question the lowest bidder, "Why is your bid so low? What makes you so sure you can out perform the other contractor's I've talked to?" And they usually don't have a good answer.
I drive a desk and work in IT - hence the handle.. estimation is very similar headaches in our industry as it is in physical construction. It is an estimate, not a fact. For all of you men and women in the trades - hats off and thank you for all the dusty, dirty, grueling, hot, cold, wet, and hazardous hours that you put in!
Couldn't agree more. Management/clients can often ask the "how long will it take" question even prior to or at the exact time of providing requirements. This gets even more complicated if your organization doesn't really manage time in relation to all work you are doing. Even moreso complicated when you factor in that much of professional IT work is not cookie-cutter manufacturing (most stuff is new in some way). I hate giving estimates in IT. Even considering the downsides, most times I rather them give me a deadline first and I can say whether or not it's likely it will be done by then.
As a former construction site development foremen doing excavation and clearing I just want to say that I wish more people felt like you do. We were on one job and this woman comes over irate talking about we're killing her view as if she owned the land or something. Also did a municipal job straightening a wandering stream that was threatening a few homes, had to install a riprap to keep flow at same velocity as to not create erosion issues down stream and we had several people chastise us for destroying the environment. The people that lived along it were mostly gracious, several giving us drinks and snacks and one particular retired lady was keeping us up on hot, fresh coffee because it isn't like they can just go messing with streams and it was a long time issue before it finally got funding. Pro tip, when you see 5 guys watching one shovel that is because 4 of them are swapping out after 5 minutes of hard and fast digging so everyone stays fresh.
Agree its a constant battle. I was taking one course once and best ways for bidding estimates for big projects over estimating a range . Shooting for the lowest number in range but comunicating with the owners of project how expensive it could potentially cost. This sends a message that yes everyone is committed on being efficient but there is always something that turn things costly
I work in project planning and scheduling in the Aerospace & Defense industry, and we have a very large set of eyeballs on our project costs. The analysis at the end is absolutely correct - a little more time in the estimation up front goes a long way. The other big tool in our toolbox is watching the schedule and budgets against a planned projection. If things start popping up that aren't planned or are significantly outside the budget box, we can identify them immediately and figure out what to do about them. We make the best plan we can at the beginning, and drive the program to stay as close to that plan as possible throughout the execution. And in the end, we are reasonably close to both the date and dollar targets. At least, that's how it's supposed to work.
Small correction at 4:25: as an engineer often tasked with estimation during different phases of the design, we absolutely do track material prices, labour cost, .... You can't estimate the cost of a quay wall without somewhat recent steel and concrete prices. I'm assuming other countries have indexes for those as well.
Haha yes, I was generalizing that someone excellent at designing isn't always great at estimating. They are two different skills, and most good engineering shops have great estimators on staff.
@@PracticalEngineeringChannel With personal experiences with personal needs' and strict regulatory this does comes at an expense though. That's relations, so it can be good or bad I would say.
@@PracticalEngineeringChannel I certainly fit the bill as an engineer with skills in design, and next to none in cost estimation. I do HVAC engineering in NYC and I'm often asked by clients or architects, informally mind you, what the cost of a job might be. I have no idea. I rarely, if ever, see how much the cost of the equipment or labor actually are.
In China where I did help prepare a budget for HVAC installation in a large construction project. The project management asked major bidding competitions for submit a rough estimate (without detailed drawings, only estimates of number of rooms/ number of building’s/ number of systems per building). Each brand usually partnered with only one installer. Then the average was adjusted by the manger and used as guideline when publishing the project on the bidding platform. We then submitted a bid with our equipment brand, but this time with estimated material cost (again without blueprints, but we will know rough dimensions in published bidding document). Lowest bid were kicked out and then they judge the bid based on the price, certifications, quality of the bid (which included examples of past works). It’s not always second lowest bidder wins. Then if we won, they give us the structural blueprints and we submit a total (accurate to hundreds of dollars). Which hopefully is lower than our bid. If it was higher, we roll it into an “additional equipment budget request”, this is submitted after construction is complete, as usually they will change number of systems/equipments needed during construction. Sometimes if it’s small enough, the company eats the difference. I don’t know the details about the payment, but usually we only get at most about 60-70% of the money when we mostly done with construction. the last 30% is only paid after they accepted our work, which can be several month if not a year after completion…
Kicked the lowest bidder is new to me. When I think about it that was a brilliant move. So contractors will not make the price artificially too low to win the competition or risk to get expelled.
@@raifikarj6698 Exactly. I wish more American governments (local/state/feds) would do this because I can always under-estimate and then say "oops, overruns lol" and now I'm already on the project so are you going to switch contractor half way through? Of course not...
Hydraulic services engineer here, I'd be asking the question why is a design engineer pricing the job? I'm sure they could give a basic price or if they have field experience and keep in touch with the manufacturer/labour cost of trades they could give a more accurate price. But this is the whole point of quantity surveyors they price our drawings every phase prior to tender. If you're using engineers primarily to price your jobs you're doing something wrong.
I recall that on RM transit, they pointed out that the rapid expansion of high speed rail in Spain was on or under budget. The reason was the companies were experienced in such projects. They had very few 'back to the drawing board' moments. Stations were similar, and not excessive. Unlike the big dig where there (fortunately) was only one instance, and everything was new and different. As an aside, I wonder what 15B would have bought in regional transit improvements.
There were very real consequences to public transit in Boston as a result of cost overruns of the Big Dig. Funds were diverted from the MBTA, which resulted in years of deferred maintenance and the abysmal reliability and safety we see on the Boston subway today. Not to mention actual improvements and expansions that could have occurred...
@@theondono The guy he mentioned at the beginning of his comment told him that. Though I remember that a bit differently - more like high speed rail in Spain being significantly cheaper and not going anywhere near as much over budget as compared to the US for reasons stated above
@@uzi103 building a surface-level many-lane road over the tunnels when it could’ve been a park/plaza and more green (or smth else) line stations is so 🤦♀️
Once I had the chance to bid an engineering project using carefully gathered data from a previous project which was almost identical to the one we were bidding. When we presented our estimates to management they rejected them - saying they were too high and "the customer would never approve of that." They went ahead and cut our numbers by such a huge margin we engineers refused to sign off. Eventually we lost the bid, the feedback from the customer being our numbers were "absurdly low." Live and learn.
As an mechanical engineer I think a lot of it is higher ups that just have an unrealistic price targets, so the project gets green-lit and the price is what it is, and yup, as you said, the ridiculousness of having the engineer come up with the price estimate as we don't know, heck the same part quoted at the exact same time gives such drastic differences between suppliers, I've seen as high as a 2-3x different in pricing. And of course no one wants to take into account inflation, sure that project may have cost say 10 million 5 years ago, but with ballooning inflation it could easily be 20 million now, and with long term projects like the Big Dig no one is going to sell you material now for the price they were 10+ years ago.
The other part with mega projects is that you might estimate it will take 10 years. Then it gets stuck in discussions for 2 years prior to go-ahead. So even before delays it is 2 years off regarding inflation, assuming it was correct initially.
@@ttv8223 yup, like here in Massachusetts, we have an interchange in desperate need of a replacement as it's not even close to being able to deal with the traffic volume, but they have been researching the project for well over a decade now and they still haven't decided on anything, so now it will probably cost 3-4X what it would have if they had just made a decision 15 years ago
Thank for your insight. I do appreciate you putting these together. Being involved in a number of large construction projects over my career. What you said here was great. How we budget and bid projects really needs to change. My personal opinion is that. Establish what is the goal, and the life cycle, maintenance, operational characteristics, length of construction, and perhaps a few other parameters. Then put it to contractors to provide bidding based on these parameters. Make them responsible for oversite and unforeseen stuff. Make them responsible maintenance and operation for 10 years. And at the end of that have 3rd party bond release to prove it is on path for life cycle. And bond it for life cycle. You would need to allow for innovation so the construction costs could be mitigated where possible. We proposed a system on a large scale project that would have saved as much as 30% in direct cost on the foundation and cut 6 months from the over all schedule. We were willing to prove the concept at our cost with 3rd party oversite. But the answer was "we have a way of doing things and this doesn't fit". There wasn't an incentive to save money. It makes me suspicious. The savings may have been $40m or more. Wasn't the first or last time I bumped up against that type of mentality. It happened in my own company. So, I retired early as did another bright person I know. Until we change things we should expect things to continue as they are. Again thanks for posting these TH-cams I find them informative and it keeps me thinking even if I am not involved. Mike
I work in software engineering, and I am not surprised at all. We do mainly in-house development within a medium size corporation. Most projects take more person hours, and also more actual "calendar" time than initially estimated. I think the main reason is that many complexities only truly unfold when you actually do the work. Also, more often than not, our customers wish more functionality than originally planned, so the final product is better than expected, but also more complex.
This reminds me of Duomo di Milano, the Cathedral of Milano. It took took nearly six centuries to complete, and the building materials found their way to a lot of other buildings.
One (small) job I did an estimate for, got questioned by another engineer (not unreasonable). However, in discussing how I got the person-hours to do the work. I started explaining that you start from 2080 hours, subtract holidays, annual leave, a week of pto/sick leave, hour for weekly meetings, time for mandatory training, and at the end you might get 1800 usable hours in a year. He said, oops I never thought of all those “lost” hours in my estimates, time to account for them in the future. So always room to improve estimates.
One of the things I've seen in the past is that its not just the cost of an individual project, but also how many similar projects are also planned. People tend to get good at things we do a lot. A one off project doesn't leave a lot of room for optimization, while something produced in the tens, hundreds, or even thousands provides both stable work, and ample opportunity for individuals and groups alike to accrue skill and make optimizations to how they work.
I’ve written several papers about this so it’s always great so see more people talking about it. I would like to add one thing I’ve talked about a lot, and that is the way construction bids work they favor lower costs and hence underbidding. If you make a budget that covers those extra expenses you will likely get underbid by someone that says we won’t need those.
I would be interested in reading some of those papers... What are some of their titles? (I ask just about the titles because I don't know how TH-cam handles links in comments)
I do cost estimating & design work for large scale bridge projects on the subcontractor side. One of the factors that you didn't hit on was bid items. Each item (steel, concrete, rebar ect.) is usually a unit price at time of bid and they all add up to the "lump sum" shown to the public. If a contractor sees that there may be an underestimate or need for more due to deficiencies on one item they may bid that higher and put others lower. At the time of the work then payment they are able to justify the larger quantity and higher payments. Another factor is the owner. If there is an agency with multiple layers you have to go through to get anything done the costs will increase on all sides, at the expense to the taxpayer due to redtape they put in front of themself and to the general contractor due to delays that they will not be able to recoup.
I'm a professional estimator working on the pre-design side of estimating and helping owners create budgets. So much truth here, especially when it comes to people just throwing around a number without understanding what that number does or doesn't include, and people forgetting that estimates had a specific set of assumptions, and once those no longer apply the estimate can't be used in the same way anymore. I too think spending more on service like what I provide and you provide is the answer 😁
There is a way to avoid this problem: inform the bidders that NOT the lowest bid but the next-to-lowest bid will be accepted. Suddenly the bids become more realistic.
@@PrezVeto Why do you think it can't be both? The whole reason this video was made was because whatever they're doing isn't working or at least isn't working completely to eliminate the problem.
@@rupert274 If they meant it wouldn't work _better_ than the current method, that would've been a much clearer way of expressing that idea. The suggestion made, however, _is_ a proven way of improving the sincerity of bids in auctions.
CSP - competitive sealed proposal. A weighted criteria which helps select “best value”. The GC who wins could be the lowest price or they may not. This is a good delivery method for construction projects. Or CMAR.
this video is amazing it's nothing this good has ever been on TV. You're far from the only one that has videos that far and exceeds what I've ever seen on TV, At least for nonfiction. this is videos with literal and metaphorical everybody read between the lines
I’m an explosives engineer in northern Virginia. We do mostly data center jobs these days and my god everything is constantly changing. From deciding to make the fiber optic duct bank deeper after we have already blasted it, to moving them 50ft in another direction after the blasting is done. It never fails and always costs the builder a ton of money either having us blast the new area or just hoeramming the rock out. We recently got kicked off a job for 8 months because the bald eagles nesting in the area began their mating season and we couldn’t blast or drill during that time. That was not accounted for in the timeline of the job by the GC.. lol
I work in Architecture. Every single architect I've ever worked for has told me the exact same thing. "Never ask an Architect for how much something will cost to build, because we're always wrong."
@@MrFleischbrocken At the end it becomes your problem because even if you do that the project is overrun, project failed, time lost etc. You can take legal actions etc but what has happened is happened.
It would still be your problem because if the company building it can't afford the cost, they go bankrupt. Then you have a big half-built structure on your lot you have to pay to either tear town or finish anyways.
@@sayamqazi not to mention a lot of those winnings is going to go to the engineering firm and the contractors you hired out to do that job for their work completed. It's a race to see who gets stuck with the bag holding. We recently had that problem with a housing complex that we were working on, we were the civil utilities and we built three of them for them before that, on this fourth one they ran out of funding.
Grady! You should do a related video on the reconstruction of the Salt Lake City airport and how the slowdown in traffic due to COVID allowed the project to shed years and literally billions of dollars from the project. A fun story about how changes in situations allowed a project to get done early!
We started reno work on a school the week they shut down for COVID. Was going to be months of afternoon work (25% labour premium), we were able to complete in a few weeks on day shift.
I loved that you added the note about how it's a good thing we increase the direct costs of projects by involving more people and restraints, because it stops us from externalizing those same costs to others. Very well put! That's a good reminder in an age where some of us are getting increasingly hostile towards even mild bureaucratic process.
I'm a senior project scheduler, having worked in the heavy construction industry (think power plants, etc) for over 2 decades. Cost & time estimates are often more art than science. I keep a sign in my office "Remember Cheops' Law" (Nothing ever gets built on schedule or within budget - thank you Heinlein.)
Availability of materials has a huge influence on construction costs as well. We had a roadway realignment and a parks project that were impacted midway through the project by a local concrete shortage due to large private sector factory being built at the same time. All kinds of mitigation costs crop up when you have to pause a project halfway through.
As a former resident of the Boston area, the Big Dig was worth every penny even though it was double the cost. It made Boston such a more livable and vibrant city, expanding access to the waterfront in a way that didn't exist when the Central Artery was blocking the way. I love visiting Boston now, especially the greenway now built where the road once was.
When I was planning on starting my own business I was given two things of advice 1) however, long you think it will take and, double it 2) however much money you think it'll cost, double it
In the UK there is a rail project called HS2 that was originally going to cost £30-£36 Billion and is now costing around £100 Billion. The project started around 2010. The first phase is estimated to be completed in 2029-2033 and the second phase 2035-2040
An interesting case study is Heathrow Terminal 5; this was a £4 billion project that was completed mostly on time and under budget. What they did was change how they handled contractors, normally contractors take on the risk with their work, but BAA chose to hold all of the financial and legal risks themselves, which meant that contractors could focus their energy on getting the job done rather than ensuring they were legally protected from delays. They also offered a bonus scheme to contractors to encourage them to complete on time and within budget. The lack of risk also meant that vendors were encouraged to work together to find solutions rather than play the blame game on who should bear the cost of the solution. As Brady mentioned in this video, the T5 project also benefitted greatly from an extensive planning phase to find problems before they occurred and mitigation plans.
I worked for a defense contractor (construction) in the mid eighties and a common problem was mistakes in old blueprints. A typical example was a vital electrical conduit that simply wasn’t on the blueprints. That may be less likely in the computer age, but it caused cost overruns all the time back then.
I'm a current construction electrician, mainly doing commercial work, the problem still persists, even though the drawings are all on computers there issue is now that people make change orders and want things done AFTER a lot of the work has already been done. Conduit installed based on devices it's going to, wiring pulled inside conduit based on current draw of the devices, and now they're saying we need more of this, some of that. Well space doesn't just magically appear in pipes, you cant cram more than a certain amount of wire in conduit. Happens ALL the time
I am one of those people who still live by my word, I don't get a lot of projects because my bid is usually higher than the others, but i have been told later that some of those customers said they wished they would have accepted my bid because the final cost was higher than I originally bid, Difference between me and others is, I usually stand by my original bid, unless the customer adds things that weren't in the original bid, in my 40 years of construction, I realized that most companies quote jobs for under value just to win the contract, but once they win, they add the costs, by then, the customer is already locked in, and the way contracts are written now days, the customer doesn't normally have a choice to opt out after the project has started. I am not a huge success in the industry because I am old school, and will always stand by my word, and a handshake still means something, That being said, I also have to be cautious about who I do work for. I wish life was a simple as it used to be, but unfortunately, people aren't as honest as they used to be.
A mate of mine who’s a Builder doing home renovations taught me how to quote. 1 - Run the numbers as you see them regarding materials and labour. 2 - Double that number. 3 - Add 20%. That gets him pretty close most of the time. 👍
Having been involved in bidding out municipal projects, I can tell you that one thing that the spread of bid numbers can possibly tell you is how much the contractor understood the project.
Yup, I've worked on a project where one of the subcontractors missed the second floor on a two-story building while estimating. Their contractor held them to it.
I interned at a design build firm over the summer, which was cool to see as Im studying mechanical engineering, not civil. During covid, there were stories of new steel prices coming in every 4 hours. Imagine trying to put a bid together for a project to be completed in 4 years with prices changing every 4 hours...
@Qualified Not, before I got laid off, I remember doing estimates for precast concrete that would go into production about 6-12 months in the future. And the steel supplier would only give quotes good to the end of the day. That was in early 2019.
Here in Germany the big companies often purposefully lower their estimates by excluding items they know are needed but not obvious to the bureaucrats administering the bidding process. That allows them to be lowest bidder. Later the public discovers that the bridge across river x actually didn't include a road surface on the top etc
Check out the Interstate 70 reconstruction around Indianapolis back around 2007 or so. Built pretty much on time and on budget by making the contractor agree to a MASSIVE bonus for early delivery and a MASSIVE penalty for even one day late. Cooperation happened, and it seems to have worked.
The vast majority of archeological discoveries in the UK come from construction sites. It must be a nightmare for project managers and contractors as these discoveries are so common and they always result in unexpected delays.
Okay final comment for the morning: I think that it may actually be a feature that we start under budget and adjust it as we go. I've never worked on massive projects like that, but even smaller projects can be crippled by trying too hard to "get it right the first time." There is so much you cannot reasonably predict or estimate. Just do a sensible job and then adjust it as you go. Better that than getting stuck in planning hell. It's actually pretty amazing that we can do multi-billion dollar projects at all.
I really like the objective practical approach to this video. You’re statement about a lack of practical experience could be applied to a great many people who are well intended but highly inexperienced. Thank you!
I can not agree more with the end of the video. I work for very large and complex transport projects (new subway lines with fully automatic subways, most clients being public agencies). So it's very similar to the example chosen at the beginning of the video. We also go over budget almost every time. I am myself a huge sponsor of more transparency towards our clients regarding our hurdles and uncertainties. I am convinced that it will improve the way clients see us. I had a long discussion with my manager this week, regarding a particular issue we had, and I managed to change his mind only partially but he agreed to follow something I proposed. There is no small victory and I was quite pleased with his reaction.
I've been on projects that come in UNDER budget. That's because we always over estimate to account for delays and changes that inevitably happen. And we build for wealthy individuals and not taxpayers. Taxpayer money spends much easier than someone's personal cash.
Another aspect is because they tend to award things to the lowest bidder. So a lot of places will deliberately underestimate it, so they can secure the contract and then get the additional funding later once work is already underway.
More often, award to the " lowest responsible bidder" , which is to say their favorite bidder. Municipalities have no problem awarding crappy designs to their favorite contractors because they know change orders result in campaign contributions.
As someone that is currently doing a home remodel, I find this very interesting. Estimates on doing work have varied greatly, leaving me wondering what is this low bid leaving out and what is this high bid figuring in that others aren't? On the current part of the project, I am actually going with the highest of 4 bids. This part of the project is close to being completed and I am glad that I choose this contractor. Seeing what it actually takes to do makes me wonder what I would have gotten for the middle bids, and terrified of what I would have with the low bid. Thank you.
Great video Grady. The scale of the unknowns is truly hard to comprehend at the beginning and hard to explain why they weren't considered at the end. Another point I would add is, often estimate are right and projects do finish on time and on budget, but since what happened is what was supposed to happen, it's unremarkable (and not news worthy). People only remember the extremes, Thanks for another great video!
These projects are planned at office commercial level without the involvement of the actual people physically doing the job. Main reason why most costs mount up. Ask the builder’s opinion on how long things take and how much it will cost. Maybe then the jobs will be priced more accurately rather than getting a massive shock in the end
The vast majority of jobs are awarded to the lowest bidder. If you propose a realistic bid accounting for builder's perspective, contingencies, material cost fluctuation, potential unforeseen conditions, etc. you are almost guaranteed to lose the bid. At least that is the case with public works projects.
or cut as many corners as you can. bah, who needs 2x12s when 2x10s will work just as well. waterproofing? pfft just slap some roll rubber against the foundation it'll be fine
My dad used to be a civil engineer at Maine DOT and for a while, one of his jobs was to help select which bids to choose on projects. A lot more goes into it than people expect, and no, they don't just select the lowest bidder.
You’ve done a great job covering all aspects of cost overruns. I work in building construction and can vouch for the complexity. It’s like planning a car journey from Europe to Australia and trying to design and plan for all the known roads, known towns, border crossings, ferry rides, etc. then you begin and find roadworks, rough seas cancelling boats, civil unrest breaks out, cyclones, etc. The most successful projects I’ve worked on are Early Contractor Involvement / Engagement where there is an early tender process for rates, markups, attributes, and value proposition. From here, a Contractor can add much more meaningful value with realistic budgets, timelines, build complexities, etc. And the myth that it turns out more expensive is bollox. Clients can save thousands in PM and QS fees if the Contractor is doing it. Then I’m construction, the Contractor is usually open-book and has his reputation to uphold in keeping within his own budget.
As someone who has done many OPCCs and other project cost estimates (I'm doing one right now actually, once my lunch break is over) - this video hits a little too close to home😂 everyone wants to know how much its going to cost but no matter what number you give them it's hardly ever very close to what it actually ends up costing, even when you add in overages.
I have estimated many projects and I was directed to underestimate all projects in order to win the bid. My real estimates were always close. Also, I focused on the time rather than the costs to complete the projects. Time is always more important than price. There is no incentive for an engineer/estimator to over estimate a job and lose the bid. Also, especially government jobs, management/clients cannot keep from meddling in the project inevitably increasing time and money
There's a lot that wasn't brought up here too. I work in consulting engineering, we absolutely see other companies underbid us and the client coming back to us to finish the job when the consultant that underbid us basically doesn't finish the job because they didn't bid high enough. Its often a communication breakdown. For example the client says build me a car 2 different consultants will give two different estimates. One for a Ford raptor one for a Yugo. The client selects the Yugo because cost and not reading in depth enough. Then the client has to come back around to upgrade the suspension and add an infotainment system.
I think almost every project I've worked on in the last 2 years was budgeted 3-4 years before their start. As a result all of them were over budget before engineering even started. I also end up having a lot of clients who want to change or add things to the project which add cost and then are amazed that the new estimate is higher than the number they had pre-enginerring. Then they ask you to do anything you can to cut costs putting me in an awkward spot where I have to figure out which of my standards I can skimp on without actually compromising the safety or functionality of a project. I think this is why there are so many awkwardly designed things in the world that I question.
Thanks to you and your videos, I have been able to understand civil engineering to a much deeper level. I have been watching your videos for +5 years, and they are always amazing!
Anyone considering getting into safety razors, cost saving tip! Dry off then store the blade you're using in mineral oil to drastically increase the lifespan. For me it at least tripled the uses I get per blade. Also excellent video as always Grady!
Best informative vidio I have seen in a long time ! Unforseen circumstances and costs ! Are always overlooked ! But I have a new approach to projects now after years of cost overruns! And it is very simple to start with but gets more complex the more into a vision ! Rule one that I try to follow is this ,the right way not his way or her way but the right way with proper science! Number two ! Have meetings then leave the meeting without commitment to anything don't sign anything or agree to anything but to sleep on it ,let the problems and issues sink in and come up with solutions and then adjust the right way! It can't always be done but some people are good at pushing hidden adgenders and bulldozing projects thru to get you to sign up for their benefit not yours ! Also be careful of chair persons at meetings that push the meeting along without all the facts being tabled ! And these days a chair person can be paid to push your topic off the adgenda before you have got to the crunch point ! Chair persons can be bribed before a meeting to work for opposition ! The truth is utmost importance! And that normally is the right way ! It's a dog eat Dog world out there !
This is an excellent summary. I come from the contracting side, and while I was never involved with bids, I was involved with 'finding' extra costs during construction. In theory the contractor gets paid whatever he bid, but of course that depends on the type of contract. For larger civils jobs there is always going to be a degree of uncertainty, so there is an agreed method of paying for extra, unforeseen, work. But there are also fixed price contracts for smaller works. In this case the theory is that the contractor takes the hit for unforeseen costs. But of course there are always means to be creative. Go back to the drawings and schedules to find something not clearly specified and give the client the option of paying for something substandard he hadn't anticipated, but what you have priced for. Or give him the option of paying for what he was expecting, but adding a nice markup. Creativity isn't always that hard. One of my first jobs was on a site for the UK ministry of defence - a submarine base. We were building jetties with a few brick structures and service roads. The detailed drawings showed they had specified a certain brick manufacturer and brick type and finish. We had priced for this but when we told them we had only priced to cut standard bricks to the angles needed, they demanded special bricks be made for e.g. 45 degree corners. As we hadn't priced for specials I prepared a huge schedule of specials for the manufacturer. Of course the MoD had specified one manufacturer, so they added a huge markup, as did we. This was probably a small gain, but multiplied over several other claims, turned a high turnover, low profit job into a healthy one for us! Others have pointed to low bids as being a problem. Yes, there are contractors who will bid low in the hope of claiming extras, but it is a fraught time-consuming process, not something any contractor wants to do if they could get a reasonable return without it. Saying clients should accept higher, more realistic bids is easier said than done. Those higher bids are probably from contractors who already have enough work in the pipeline. They bid to stay in the game for future contracts, but know that others will bid lower, so don't expect to get the work.
You could compare the cost overruns of large projects undertaken by corporations vs. that of government bodies to see if there is a significant difference (I.e. new office building vs. new city hall)
I am not an engineer...but I like to think that if I felt I could have chosen my path knowing what I know now, I may have been. Instead, I am a chef/owner of a catering company and I have to estimate costs for events that are happening at a future target date. Thanks for the content. I have some ideas on how to make our estimating process better.
Indeed I think what he is getting at is being more upfront and honest. Even if that more negatively involved. But as he said, not TOO much of it either!
I love your very practical analysis & would love for you to do the same for the Kemper County, Mississippi power plant fiasco. Another project from decades ago which went even further over budget (percentage wise) than the "Big Dig" is the original Sedona, AZ sewer system . Dramatic effect on a small city. Both these projects had significant 'unanticipated' challenges around original designs. These are just 2 which affected me personally.
Here in Australia our biggest and most recent megaproject was the National Broadband Network (NBN) Project to supply Broadband to ALL of Australia. In 2007 it was estimated to cost about $20 Billion. Then we wanted to do Fibre to the Premises FTTP which was estimated to cost $38 Billion. By 2009 the estimate was $43 Billion and completed by 2020. By 2019 it had cost $51 Billion and in 2020 they added another $4.5B to the budget to make it significantly faster for about 1/3 of the country. All up it's estimated it ended up costing us $57 Billion dollars.
Excellent summary! As a civil engineer and project manager, I was involved in cost control in various roles on all sides of the table, and I can relate to these explanations. However, even fellow engineers do not understand why infrastructure projects today apparently always run over the budget, while in the past, that was (allegedly) never the case. And the recommendation around the 15 min mark is really to be considered. Every € you try to save by cutting corners in the planning phase, you will likely pay 10 times more in the construction phase. Of course, in large critical infrastructure projects, you sometimes do not have the time for complete planning but need to start asap and fill the gaps later.
I went to school for civil engineering, took a break, then did carpentry/construction for almost 3 years. I will go back to school eventually, but I’m hoping my hands on experience will make me a better engineer, and maybe I’ll be able yo better estimate if it is ever my job to do so lol.
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I remember a little snippet my grandfather cut out of a magazine from the 80s on a revised version of murphy's law that stated one of the 'revised laws' as "a carelessly planned project will take 3 times as long to complete. a carefully planned project will only take twice as long to complete."
Omg slay
The code isn't working for me.
I always assumed that companies that estimate costs would vary above and below the actual cost. But since the lowest bidder usually wins, it'll always be one of the under estimates.
You are correct, projects that take years to complete, there is always inflationary costs that are commonly missed in the bid. For example: Over a ten year span there can be between 10% to 30% increase in the cost of the job simply because of the time it takes to complete. That isn't counting the unforeseen issues that may arise during the project. Just between those two issues, that could lead to an increase of more than 50%.
There's an important aspect of this problem that was missed by this video:
If you come in with a realistic, expensive bid, you simply will not win the project, if every other firm is coming in with a lower price. The entire industry is financially incentivized to under-estimate.
When I was going through engineering school, we had a series of lectures specifically about the problem of cost overruns in the engineering and construction industry. The simple truth was that, for projects of the same type and scale, firms that came in with higher, more conservative bids, simply did not not win the RFP (request for proposal) bid. They lost the project to the companies that came back with lower prices, EVEN THOUGH all of those companies then went on to experience cost overruns that were GREATER than the original high bid.
The data was so tightly correlated, it almost looked fake: the higher the original estimate, the lower the cost of the project in the end, while the lower the estimate, the higher the cost in the end. Like you said, Underestimating ends up costing more than the cost it takes to develop a more accurate estimate.... But all the companies who do, lose out to those with a lower bid.
The whole RFP and bidding process that defines the industry is to blame. It incentivizes a race to the bottom in terms of estimate pricing.
Well said!
It's sad to hear that this is also happening in the engineering industry... our world has changed. Truth is even when we plan our home grocery trips for next week..we have to keep in mind that it may be a little more expensive.
And the companies who underbid and create a boondoggle STILL win the next bid because they underbid that project too!
I think this is a big factor. At one defense company I showed statistics for hundreds of proposals and showed the true cost was consistently about 180% the proposed estimate. The reality is if a company started adding a 1.8X cost multiplier for "accuracy" in the proposal stage they would be bankrupt by the end of the year. There is a psychological block at the level of non-technical managers that prevents realistic bids at the outset.
Yes this. RFP responses are pure fantasy and if funders knew what a megaproject would actually cost they would never approve it.
When a contractor bids a realistic number, they're almost guaranteed to NOT win the project.
"You should be more like Jenkins, his estimates are always reasonable."
"Why don't you have him do the project, then?"
"He always overruns for some reason!"
And when a politician signs on to support one, they get voted out of office. Any Bostonian today would tell you the big dig was worth it, but tell them how much it actually cost before it happened and the whole local govt would turn over when the taxpayers revolt
Unless your crew has a reputation for excellence.
@@SorieI no. Just no.
It’s like this in real estate sales too if you come in with a realistic number you’re almost guaranteed to not get the listing and sellers will say you’re slimy and just trying to get a quick sale. That’s why a lot of agents give them the number they want then call a week later saying we need to lower the price.
My favorite engineering estimation joke goes something like this. There's a project manager who's projects are always on time and under budget. When someone asks him what his secret is he tells them that he goes to the best three engineers and gets an estimate from each one. The person asking the question then says, "and then you average them?" And the project manager says, "no, I add them up." I'm pretty sure I've never estimated a project correctly.
❤
that beats the hell out of the "you can't spell geek without an EE".😂
This is a funny joke
As someone that does construction estimating for a living I loved this video. Everyday is a constant battle to ride the fine line of expensive enough to make money but not too expensive to not get the job. When is really scary is when you intentionally price something too high so you won't get it but you end up getting it, you get really nervous that you missed something big!
Why would you bid something you didn't want to work on?
@@freeffree4133 because it is not always my choice. The salesman who works on commission wants us to bid everything and some times it is not in the best interest to do certain jobs so we quote it to keep the salesman happy. Then there are times when we tell the customer it isn't a good fit for us but they still ask us to quote it so we make it worth our while if we get it.
@@freeffree4133 As a courtesy if you have a good relationship with them and if you bid high and are awarded you have enough money for your "B" team to do the work or make $$ with your "A" team.
@@greg9794 I'm about to get contractors to place bids on my first a full gut condo rehab. How do I know if I'm getting the "A" team bids? 😂
@@freeffree4133 In addition to what the other guy said, if you decline to price work for people, they won't think they can count on you when they really need a number.
I have a short story. At my last job we had to estimate the cost of a project and give our plans. My plan cost 3.5 million dollars up front with no annual costs and would take 18 months to implement. The other project had 1 million up front, half a million annual, and would take 3 months to set up. They opted against my plan. The plan they opted for ended up costing 7 million up front, took 48 months to implement, and has annual fees of 2.5 million. Yikes!
What's to say yours wouldn't have blown out too?
@@VineFynn bc my system is a tested true system with years of experience behind it and I had people who have used and installed it for decades and a guy on my team invented it and knew exactly how it works. and their system was some proprietary thing. mine was plug and play, a known known.
It's called crony capitalism, someone's getting kickbacks duh...
@repentandbelieveinJesusChrist8I forwarded this for you to the folks who rejected the op's proposals. ❤
@@Melthornalwhat do you put it down to? that the customers were ignorant of the benefit of your method or that they'd already chosen the contractor who got the contract but had to do "an open call" for bids because of the company's rules....or something else I didn't think of?
thx Mel ❤
There's always something a little ridiculous about budgets. Let's say you have a project in mind, and there's a 35% chance it costs $100k, 30% chance it costs $150k, 20% chance it costs $200k, and 15% chance it costs $300k, due to various possible contingencies during the project. If you wanted to provide a single number to the decision makers, you could give them the 'expected' cost of the project by multiplying and adding those together to get an Expected Cost of $165k, but if you've budgeted your contingencies properly, there's 0% chance it will cost $165k! And as Grady said, you can factor in inflation, but since the 2008 crash a lot of countries have implemented good governance regulations that outlaw back-of-the-napkin guesses since they can be used to nefarious effect.
Speaking of nefarious, history has had more than a few cases of the underhanded Robert Moses tactic of "Tell them it'll cost 1/3 of what it will actually cost; then once a politician's staked their career on this project, you tell that politician they need to find the rest of the money or else the public will blame the failure of the project on them."
Hello Frank Underwood
Robert Moses was not a good person, that's for sure.
@Calen Crawford Edison actually brought about lots of useful things. Moses just wrecked NY City at the expense of solid neighborhoods and their residents. He referred to the people who protested being kicked out of their home as "animals who got stirred up". He is the quintessential urban central planner.
@calencrawford2195 @
"The first 90% of the project takes 90% of the budget. The last 10% of the project takes the other 90% of the budget." That was the advice we gave clients when I worked as a Project/Program Manager for KPMG.
Both money AND schedule at times.
ok
ok
The first 90% of the project takes 90% of the budget, the next 90% of the remaining 10% takes another 90% of the budget, the next 90% of remaining after that takes another 90%, to infinity or until good enough.
What is kpmg
I’m a retired construction superintendent who managed commercial building projects up to about $12 million (todays dollars about $20 million). The thing that drove me crazy was low bid was the deciding factor. My grandfather and father were also supers and in their day low bid and high bid were dismissed and the middle bidders were then analyzed for ability to perform. Near the end of my time general contractors I worked for would rush out to sign the lowest bidder before they had time to find their mistakes
I also don't understand the "lowest bidder gets the contract" approach. The people making the rules DO know that this lowest bidder will just bring cost overruns, right?
And if there are penalties for cost overruns, then doesn't that max amount (before penalties kick in) just automatically "become part" of the bidder's bid?
And when the low bidder goes over budget and the budget doesn't get adjusted, the LLC will just be sent into bankruptcy - and the next shell ccompany will be incorporated for the next project. Contractors in big public projects never bear any risk, but they do keep the difference. It's a disgrace, honestly.
That old way sounds much better. Sigh
There's fraud in high bids as well, though. Going with the low bidder increases the likelihood of change orders, yes. But going with higher bidders will lead to contractors padding their budgets more.
My Superintendent on my project also told me that back in the day, government agencies used to accept low bids up to a certain point, meaning if they saw that a bid was way too low compared to the estimate (which they would not provide), then they would throw out that bid. I believe USACE still works this way… not sure.. And I agree with your comment. Today, bids are all about being the lowest and in a fast manner, not being able to catch your mistakes and getting burnt during the course of the project.
As a deaf engineer I appreciate the time taken to get your videos subtitled accurately.
Really helps for taking notes as well!
ok
Wait how would you know if they are subtitled accurately?
Wait what? 🦻
@@aryanparikh9085 lip reading maybe?
Practical Engineering has been turning my entire college curriculum in civil engineering into short video form.
I’m so proud of the dedication over the years. 😊😊😊
So true. Many of these episodes are basically a week's worth of lectures, minus the rigorous curriculum and homework, in one small video.
Yep. Broader context is so helpful in learning what matters; then you go back and fill in the mathematics and physics required to attend to the daily business of engineering, and it's easier because you KNOW why you need to pay attention to this or that.
@@paintedwings74 I literally tried that exact tact going between bachelors and masters, but no one, literally no one I could find, would hire a non-masters structures graduate.
@@kindlin I'm not surprised. It seems like the entire industry clings to 1950's mentalities, to varying extent.
I'd go around as an apprentice and talk with the other trades about what work we'd be doing in the same space, and get the most bizarre looks from my guys and theirs. What was so wrong with talking it over briefly to decide whose stuff needed to go in first, or how we could both occupy the same space at slightly different times, to avoid time delays? But it was unheard of--HVAC and plumbing must forever compete with electrical for the easiest installations! Whenever I came up with a time-saving way to get things done, I was met with silence; too smart, too female, too collaborative, and damnit, her way works.
I suspect that way will become more normal in trades, because more people are entering trades later in life, no longer subject to acculturation into the 1950's old boys' club from 18 years onward. But when it comes to higher ed degree-based elitism, is there any hope? I don't know.
I live in a university town. I don't even bother with the vast majority of environmentalists from that background, unless they've worked in jobs where they interact with hunters, fishers, and trappers. People need to get de-silo'd from their superiority complexes before they're able to listen to common sense advice.
@@paintedwings74 You definitely took this thread in a different tact, but I agree with you, mostly. Degree's are still good. I learned a lot, but it didn't help me be a better engineer.
The other thing worth mentioning is that there's almost always some kind of competitive bidding going on that provides an incentive for parties to underestimate costs. A bidder who bases their estimate on everything going perfectly is obviously going to have a lower bid than one that realistically considers the risks...
Good point
As an engineer turned builder, this is what I came to say. There's pressure on GCs to keep their bids competitive in order to get the job. Bit of a double edged sword that can be ironed out through contract qualifications and a more detailed Schedule of Values with bid packages
And to select someone else than the lowest bidder in a process like this means you have to do a huge amount of paperwork to justify the decision
Company A underbids and gets 10 contracts. Company B does not underbid. The government still gives company A the 11th contract. There is no incentive to be honest, and 0 credit is ever given for being on time or under cost. If you are $1 under on a bid you win.
A simple fix would be to cap the amount a bid can be off to 10%.
Off more than that, and the company has to pay the costs, even if it causes the company to go bankrupt.
This is the most painfully relevant video Grady has put out. I found myself laughing and crying and pausing to shout “YES Somebody Said It!” I’m also an engineer who has wildly underestimated costs based on only conceptual designs and a site walk through…The secret is to write everything down and document every decision.
Bless you..I think being an engineer is as hard as being a soldier. Thank you for keeping others safe💜
I guessing what you are saying in simpler terms is that we should all try to be more liable and responsible.
Even if you've got everything right, realistically and accurately, there's always scope diffusion while the project is underway, to fundamentally muck it all up beyond recovery.
This is true for most projects - pulling Network cable, websites, design jobs, catering. You name it. Plus bidding low to get the job in the first place.
If it's early enough in the planning, in addition to the base estimate, it's worth adding a high end estimate and disclaimers of the assumptions used for the base cost estimate. High end estimates are common with contractors who are asked about expected cost prior to doing a time and material job. When you estimate high and come in under budget everyone is happy. Having the two numbers would be good for engineering firms because everyone would be expecting the possibility of the higher number but be shooting for a design that minimizes the cost to as close to the lower value as you can get.
I worked on designing temporary support structures for the Big Dig. They deliberately under estimated the project so that they could get it through the legislature. Previously, as a town engineer, I designed and ran my own small bridge replacements. I did them for less than 1/3 of what the DOT estimated and only took 3 months to replace the bridges. I started construction the day after the last school bus went over in June and had it open again before school started. Consultants complained that I was denying them work so the DOT banned me from doing bridges. All of a sudden, large bridge projects that I estimated at $500,000, became $3,000,000.
I'm now glad that happened because it was just before chinesium started taking over and causing problems.
A very good and thorough video. Yeah, the idiots don't understand that construction escalates at a much higher rate than the government estimates inflation. When I was a combat engineer bridge builder we were taught to add 25% for losses, on our estimates. I carried that over into my civilian estimating. I hope that young engineers are watching your videos. Good Luck, Rick
I ran into issues of the nature doing IT for a US state government. State laws required we contract out a lot of work despite having the capability in-house. My all time favorite was for a campus portal project of a major public university where parts were contracted, months later the contractor said they could not deliver, we wrote it in-house, and when the auditor (same company as the contractor previously mentioned) reviewed the service they failed it declaring "we can do it better."
The fact that everyone wants their cut is a very real part of doing business with taxpayer dollars. Its very similar to organized crime.
Examples like this is exactly why I think the US is going to fail as a country.
It's system of governance is rotten with bureaucracy & special interest groups. It is squandering public funds & being inefficient with its resources. Taxes must be raised to accomplish the exact same thing & it becomes a less competitive business environment.
People rightfully think "I'm not getting what I pay for" & move their businesses overseas where the grass is greener & taxes are lower.
It's a shame, personally I don't think some big super power will outright replace the US, rather regional powers will rise & decrease America's share of global influence. It's a shame that countries like China & India will control the world in the future...
This is what I always figured had happened. Everyone knew it was needed but also knew no one would vote for it if they knew what it would cost so they low balled it to get it started and then slowly asked for more money as time went on. Easier to ask for forgiveness than permission as they say.
Maybe you lost business for being a bigot?
I've worked on projects that had to be rerouted multiple times because we kept finding things during the environmental survey, but it's better than not doing the survey and finding human remains in a front loader. There's so many old, abandoned, and unrecorded cemeteries in the US that sometimes we were the first people to see them in a hundred years.
We have one of the largest civil engineering earth-moving projects in the western hemisphere located here in eastern Kentucky. The Pikeville Cut-Through moved 18,000,000 lbs of soil (the Big Dig moved 15m), rerouted the major highway, rerouted the railroad tracks, and moved the route of the river. Additionally, it created 390 acres of usable land for downtown development. It was completed in 1987 at a cost of $77 million.
Speaking of miliary costs. True story. My buddy in the army told me about how everytime they go out for training that the squad uses all the ammo regardless if it's for the actual training. The paperwork to put back ammo is longer form than to take it out. One time they blew up a whole box of grenades because it was easier than to return it. This happens every single time for everyone. Probably half the military budget is just wasted because the paperwork is a pain.
It's the same with health and safety paperwork. A guy cuts his finger open and then spends hours in interviews with H&S reps while they fill out the paperwork about how it happened and which machine it was. This is why so many employees hide an injury to avoid paperwork.
@@caravanlifenzI do this all the time. Safety paperwork is a horrible, tedious, waste of time. Whoever is out there pushing more and more invasive standards probably had their heart in the right place at one point, but it is now outrageous in both cost and inefficiency.
Taxation always produces waste
Because there is o reward or value to being frugal
Consider how much it costs
The paperwork almost costs nothing compared to the waste
Hideousness of people morals
And reward of waste
Communism always produces this
- institutions that steal and force themselves to be the only one who can
Hense no reason to be honest
A lot of these sorts of systems seem tedious or over-complicated because they have to apply to an enormous variety of edge cases. Sure, 99% of the time all that extra work is unnecessary, but all of those regulations have to be in place for the 1% of the time when it does matter.
I learned this lesson the hard way when building a bed frame for a customer, did everything I could to properly estimate the cost including calling the lumber yard and getting the most up to date price.
I get the customer to confirm the project about a week later go to pick up the lumber and now the lumber prices are up by a third and the "saftey" money I had calculated into the project wasn't even enough to cover the diffrence. I can't imagine trying to plan 10 year infrasturcture project because there it literally no way to know what something is going to cost a week from now, let alone 10 year!
I suspect that large contracts have pros and cons that apply vs your example, such as bulk discounts (pro) and need to source a large volume of material that the local market may not have handy (con)
Price shouldn't got up by a third in only a week on any product. That's a bad economy.
@@jliller COVID-shutdown related shortages combined with people forced to stay home and deciding to tackle home reno projects played havoc with lumber prices in 2020-2022. The cost of a sheet of plywood doubled in certain areas over a very short period of time.
Grady, thanks for putting this issue in perspective. I once managed an environmental remediation project which I estimated to be $850k. At about the $700k figure I warned the client that the final cost would probably break $1m based on field work to-date. The final cost of the project ended up ~$1.2m. Thankfully, my client had the ability to fund the project to completion. I, however, felt very bad that my initial estimate was so inadequate.
The moment you add the word 'environmental' all the variables start to go wild. Was your estimate truly inadequate or did the unknowns creep in?
Ditto what cr01 said: if you ever give advice to other people in your field putting in bids for remediation, share that story and tell them all: warn your clients up front that any bid you give them can quickly multiply, because "environment" means in this case "wild," and wild "beasts" aka remediation projects are so unpredictable, there is no knowing if they're going to bolt off in a direction you couldn't have predicted. Then sit down and do the estimate the best you can, and run a few scenarios of "if the beast bolts in this direction, added costs might look like this, as an example, but only an example".
I’d be interested in a series where you detail every step of the construction project from planning to execution. What actually is going on when engineers plan a design? How are those plans executed by contractors? Etc…
There are 5 major phases of construction - site prep, framing, rough in, finishing, and Inspection / commissioning. Note this is more of a building construction, like homes and offices, not infrastructure construction like roads or bridges. Some of these phases may still overlap a great deal however.
Site prep is the part where they level out the field, knock down the trees, and dig out the foundation. Underground service entries are also installed at this time, even as the service won't be connected to the local grid / system for quite a long time. The site started as an empty field, and ended as a poured foundation in this phase
Framing is the part where the structure starts gaining its... well... structure. Walls go up, and the building starts to look like a building. At least from the outside.
Rough in is when MEP trades run around and install all the fun things in the walls, like duct work, water and sanitation pipes, and the wires and boxes that make up the buildings heating, plumbing, and electrical systems. When you think "busy construction site" you're thinking of rough in. This phase ends with all interior walls drywalled, mudded, sanded and painted.
Finishing is installing all the things you didn't want to risk getting scratched or damaged during construction. It's installing receptacles, faucets, toilets, light fixtures, and all the devices and appliances you'll expect to be installed in a building. It starts as a building that looks almost done to a building that is done.
Finally, commissioning is when the building is turned over to its owner, and the owner can (and definitely does and should) test, inspect, point out deficiencies, and request changes before the new owner actually takes ownership
@@Mr.Sparks.173 That is all preceded by several rounds of: Env. impact Assessment, Endangered Species verifications, permitting and site prep requirements, etc... It can take years before as single shovel full of dirt is ever moved. Our NPDES discharge permit was required to be renewed every 5 years. We started the process in year 2 just to be sure we could complete it in time. It was an ongoing process.
@Jim Murphy definitely, nothing I said applies to pre-construction planning and design, which as both the video and yourself have stated is almost as long (if not longer) and as complicated as the actual construction phase.
Its just I'm an electrician, I'm quite familiar with the construction phase, but I don't know much about the pre-construction phase (our contributions is time and cost estimates in the form of a bid, which happens closer to the time to break earth than the projects start).
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"detail every step of the construction project from planning to execution" - that's basically detailing thousands of people's jobs for dozens (or hundreds) of companies, for several years. There are very few people even in active large projects that grasp every single detail. If you're interested in these details, the best way to learn is to start working in the field of construction engineering.
Wow this was so cathartic for me. I’m a software engineer and we have a huge problem with project estimates. The funny thing is, we tend to say this isn’t construction and therefore it’s much difficult to estimate something that’s never been done before. But it’s reassuring to know that even construction has a similar problem
Budgeting any big project is tough. You’re trying to predict thousands or millions of labor hours. I do it for features films, which can range from under $1M to over $100M, and it’s a best educated guess.
With software engineering, you can limit the effects of budget overrun by using the agile methodology. You can't really get away with something like that for construction.
@@Upload098765432 Actually ... yeah that is actually a very good point. The one thing that's limiting about Agile is that it doesn't really take the company as a whole right? Like, it assumes Engineering lived in a vacuume. Sales needs to know when a feature is being delivered. Marketing needs to prepare for a product launch. Management needs to know how much overall effort is something going to take and whether it's worth investing in a major product. But at least we have a lot more flexibility that a construction project.
There are a lot of incentives to under-estimate and not a lot to over-estimate. There is also the fact that it is easy to forget about something that adds costs but you rarely forget about something that lowers the cost.
Ive been in the bidding process on the contractor side. Bidding low just isnt an option because you are locked into that number unless a change order is issued. Your bid has to be low-ish to get the job but cant be so low as to lose money completing the job. (Sometimes that is done for new customers to showcase speed, quality, etc and basically get your foot in the door but i digress.) There is so SO much that goes into bidding a job that it makes my head spin. From the price of steel, to concrete, to welding (and where that welding will take place), to equipment and rentals, permits, shipping (if not built on site) and so so much more.
Hey! Thanks for not forgetting about surveyors! Everyone else seems to lol I have literally had contractors ask for a cheaper price because they "forgot to carry survey costs in their bid". This was a multi-billion dollar building construction!!
If they're in a rush it's your sign to not give in an inch since they gotta do it anyway.
My brother does HVAC and he's working on a huge hotel/luxury residency, etc... that building has been flooded 3 times from the folks doing the piping and its racking up tens of millions of dollars each time.
15:30 This was my only real takeaway in project management class: Don't be fooled by low costs at the start of the project (=the planning process). Make sure you spend a lot of money there.
Civil Design Engineer here. I think it would do a world of good if civil design/project engineers actually had experience working at a construction site. There have been times during a design review where my manager asked me “How are they going to build this particular piece of the alignment?” I kinda shrug my shoulders and point out the reasons why I made that particular design choice and he usually agrees, but we always come back to how a contractor will build it. It really is my weakest part of my engineering knowledge. To all the future civil engineers, please do an internship with a contractor and learn from them. It will save you time in the future and imho, will be well worth it.
You’re comment is fitting for a great many well intended but misinformed people.
Contractor here, I've had this issue with architects/ engineers where I literally have to be correcting their works. It all looks good on paper or CAD but not realistic in the practical.
Yes, yes, and yes!!! Absolutely fantastic advice and 💯% correct!!
Sometimes it’s as simple as the access to work and challenges to maneuver efficiently as it relates to adjacent obstacles! This can look like, limited space to erect scaffolding or removing souls literally by shovels and 5 gallon buckets! This comes with experience working “in the mudd” that non-hands-on contributors wouldn’t have the foresight to anticipate. All these factors add time, creativity, and labor intensity which are equivalent to money, 💰and 💸!!
In Australia, you can do an electrical apprenticeship (4 years of working under a qualified electrician and attending trade school) and then the government lets you complete an electrical engineering degree in half the time because of your work experience. That way, the engineer actually does know what it's like to be the electrician doing the work.
As a project engineer in Solar Rooftop business where most projects are just cookie cutter of another one and there's a lot less complexity compared to construction. My team still runs into overbudgeting issue as no roof is the same, and clients are very diverse. And the bean counters wants us to underestimate as lower cost usually gets the contract. It's a never ending cycle.
The entire concept of lowest bid gets the job is sketch. When I get some bids from a few contractors for a house project (I'm pretty handy, but some things I don't do), I will literally question the lowest bidder, "Why is your bid so low? What makes you so sure you can out perform the other contractor's I've talked to?" And they usually don't have a good answer.
I drive a desk and work in IT - hence the handle.. estimation is very similar headaches in our industry as it is in physical construction. It is an estimate, not a fact. For all of you men and women in the trades - hats off and thank you for all the dusty, dirty, grueling, hot, cold, wet, and hazardous hours that you put in!
Couldn't agree more. Management/clients can often ask the "how long will it take" question even prior to or at the exact time of providing requirements. This gets even more complicated if your organization doesn't really manage time in relation to all work you are doing. Even moreso complicated when you factor in that much of professional IT work is not cookie-cutter manufacturing (most stuff is new in some way). I hate giving estimates in IT. Even considering the downsides, most times I rather them give me a deadline first and I can say whether or not it's likely it will be done by then.
As a former construction site development foremen doing excavation and clearing I just want to say that I wish more people felt like you do. We were on one job and this woman comes over irate talking about we're killing her view as if she owned the land or something. Also did a municipal job straightening a wandering stream that was threatening a few homes, had to install a riprap to keep flow at same velocity as to not create erosion issues down stream and we had several people chastise us for destroying the environment. The people that lived along it were mostly gracious, several giving us drinks and snacks and one particular retired lady was keeping us up on hot, fresh coffee because it isn't like they can just go messing with streams and it was a long time issue before it finally got funding.
Pro tip, when you see 5 guys watching one shovel that is because 4 of them are swapping out after 5 minutes of hard and fast digging so everyone stays fresh.
A quip I remember from my 'Project Management' Course; the Platypus is the output of the first attempt at a 'Beaver' project.
Agree its a constant battle. I was taking one course once and best ways for bidding estimates for big projects over estimating a range . Shooting for the lowest number in range but comunicating with the owners of project how expensive it could potentially cost. This sends a message that yes everyone is committed on being efficient but there is always something that turn things costly
I work in project planning and scheduling in the Aerospace & Defense industry, and we have a very large set of eyeballs on our project costs. The analysis at the end is absolutely correct - a little more time in the estimation up front goes a long way. The other big tool in our toolbox is watching the schedule and budgets against a planned projection. If things start popping up that aren't planned or are significantly outside the budget box, we can identify them immediately and figure out what to do about them. We make the best plan we can at the beginning, and drive the program to stay as close to that plan as possible throughout the execution. And in the end, we are reasonably close to both the date and dollar targets. At least, that's how it's supposed to work.
Small correction at 4:25: as an engineer often tasked with estimation during different phases of the design, we absolutely do track material prices, labour cost, .... You can't estimate the cost of a quay wall without somewhat recent steel and concrete prices.
I'm assuming other countries have indexes for those as well.
I think he was just on that "we MIGHT" not be doing that because later on he did explained these indexes do exists' at access costs.
Haha yes, I was generalizing that someone excellent at designing isn't always great at estimating. They are two different skills, and most good engineering shops have great estimators on staff.
@@PracticalEngineeringChannel With personal experiences with personal needs' and strict regulatory this does comes at an expense though. That's relations, so it can be good or bad I would say.
@@PracticalEngineeringChannel I certainly fit the bill as an engineer with skills in design, and next to none in cost estimation. I do HVAC engineering in NYC and I'm often asked by clients or architects, informally mind you, what the cost of a job might be. I have no idea. I rarely, if ever, see how much the cost of the equipment or labor actually are.
@@HazenMire Bless you for refusing to answer such questions. That kind of WAG can absolutely screw your company's negotiating position
In China where I did help prepare a budget for HVAC installation in a large construction project. The project management asked major bidding competitions for submit a rough estimate (without detailed drawings, only estimates of number of rooms/ number of building’s/ number of systems per building). Each brand usually partnered with only one installer. Then the average was adjusted by the manger and used as guideline when publishing the project on the bidding platform.
We then submitted a bid with our equipment brand, but this time with estimated material cost (again without blueprints, but we will know rough dimensions in published bidding document). Lowest bid were kicked out and then they judge the bid based on the price, certifications, quality of the bid (which included examples of past works). It’s not always second lowest bidder wins.
Then if we won, they give us the structural blueprints and we submit a total (accurate to hundreds of dollars). Which hopefully is lower than our bid. If it was higher, we roll it into an “additional equipment budget request”, this is submitted after construction is complete, as usually they will change number of systems/equipments needed during construction. Sometimes if it’s small enough, the company eats the difference.
I don’t know the details about the payment, but usually we only get at most about 60-70% of the money when we mostly done with construction. the last 30% is only paid after they accepted our work, which can be several month if not a year after completion…
Minimizing dramatic outcomes? Very interesting that while you might pay mostly upfront, you leave room for arguing later on for future potentials.
Depending on the contract, at least in the us, the owner withholds a retainage until substantial completion, similar to your case
Kicked the lowest bidder is new to me. When I think about it that was a brilliant move. So contractors will not make the price artificially too low to win the competition or risk to get expelled.
Wow, hearing about this pragmatic approach from China is interesting. I wonder how they end up with so many "tofu dregs" projects in such case
@@raifikarj6698 Exactly. I wish more American governments (local/state/feds) would do this because I can always under-estimate and then say "oops, overruns lol" and now I'm already on the project so are you going to switch contractor half way through? Of course not...
Hydraulic services engineer here, I'd be asking the question why is a design engineer pricing the job? I'm sure they could give a basic price or if they have field experience and keep in touch with the manufacturer/labour cost of trades they could give a more accurate price. But this is the whole point of quantity surveyors they price our drawings every phase prior to tender. If you're using engineers primarily to price your jobs you're doing something wrong.
I definitely see a correlation between the fee I have to do drawings and the number of change orders later. It's really easy to move a wall digitally!
I recall that on RM transit, they pointed out that the rapid expansion of high speed rail in Spain was on or under budget. The reason was the companies were experienced in such projects. They had very few 'back to the drawing board' moments. Stations were similar, and not excessive. Unlike the big dig where there (fortunately) was only one instance, and everything was new and different.
As an aside, I wonder what 15B would have bought in regional transit improvements.
Who told you that? Lots of the high speed rail system here in Spain were over budget, with some sections going more than 230% over budget.
Similarly may helps to an extent but even similarly bring different experiences. Hence the unpredictability still existing.
There were very real consequences to public transit in Boston as a result of cost overruns of the Big Dig. Funds were diverted from the MBTA, which resulted in years of deferred maintenance and the abysmal reliability and safety we see on the Boston subway today. Not to mention actual improvements and expansions that could have occurred...
@@theondono The guy he mentioned at the beginning of his comment told him that. Though I remember that a bit differently - more like high speed rail in Spain being significantly cheaper and not going anywhere near as much over budget as compared to the US for reasons stated above
@@uzi103 building a surface-level many-lane road over the tunnels when it could’ve been a park/plaza and more green (or smth else) line stations is so 🤦♀️
Once I had the chance to bid an engineering project using carefully gathered data from a previous project which was almost identical to the one we were bidding. When we presented our estimates to management they rejected them - saying they were too high and "the customer would never approve of that." They went ahead and cut our numbers by such a huge margin we engineers refused to sign off. Eventually we lost the bid, the feedback from the customer being our numbers were "absurdly low." Live and learn.
Gotta love when non-technical managers intervene in technical work
They would have been a good customer to work with too, because they obviously knew what they were talking about and had good advisers.
As an mechanical engineer I think a lot of it is higher ups that just have an unrealistic price targets, so the project gets green-lit and the price is what it is, and yup, as you said, the ridiculousness of having the engineer come up with the price estimate as we don't know, heck the same part quoted at the exact same time gives such drastic differences between suppliers, I've seen as high as a 2-3x different in pricing. And of course no one wants to take into account inflation, sure that project may have cost say 10 million 5 years ago, but with ballooning inflation it could easily be 20 million now, and with long term projects like the Big Dig no one is going to sell you material now for the price they were 10+ years ago.
The other part with mega projects is that you might estimate it will take 10 years. Then it gets stuck in discussions for 2 years prior to go-ahead. So even before delays it is 2 years off regarding inflation, assuming it was correct initially.
@@ttv8223 yup, like here in Massachusetts, we have an interchange in desperate need of a replacement as it's not even close to being able to deal with the traffic volume, but they have been researching the project for well over a decade now and they still haven't decided on anything, so now it will probably cost 3-4X what it would have if they had just made a decision 15 years ago
Thank for your insight. I do appreciate you putting these together.
Being involved in a number of large construction projects over my career. What you said here was great. How we budget and bid projects really needs to change. My personal opinion is that. Establish what is the goal, and the life cycle, maintenance, operational characteristics, length of construction, and perhaps a few other parameters. Then put it to contractors to provide bidding based on these parameters. Make them responsible for oversite and unforeseen stuff. Make them responsible maintenance and operation for 10 years. And at the end of that have 3rd party bond release to prove it is on path for life cycle. And bond it for life cycle. You would need to allow for innovation so the construction costs could be mitigated where possible.
We proposed a system on a large scale project that would have saved as much as 30% in direct cost on the foundation and cut 6 months from the over all schedule. We were willing to prove the concept at our cost with 3rd party oversite. But the answer was "we have a way of doing things and this doesn't fit". There wasn't an incentive to save money. It makes me suspicious. The savings may have been $40m or more.
Wasn't the first or last time I bumped up against that type of mentality. It happened in my own company. So, I retired early as did another bright person I know.
Until we change things we should expect things to continue as they are.
Again thanks for posting these TH-cams I find them informative and it keeps me thinking even if I am not involved.
Mike
I work in software engineering, and I am not surprised at all. We do mainly in-house development within a medium size corporation. Most projects take more person hours, and also more actual "calendar" time than initially estimated. I think the main reason is that many complexities only truly unfold when you actually do the work. Also, more often than not, our customers wish more functionality than originally planned, so the final product is better than expected, but also more complex.
This reminds me of Duomo di Milano, the Cathedral of Milano.
It took took nearly six centuries to complete, and the building materials found their way to a lot of other buildings.
One (small) job I did an estimate for, got questioned by another engineer (not unreasonable). However, in discussing how I got the person-hours to do the work. I started explaining that you start from 2080 hours, subtract holidays, annual leave, a week of pto/sick leave, hour for weekly meetings, time for mandatory training, and at the end you might get 1800 usable hours in a year. He said, oops I never thought of all those “lost” hours in my estimates, time to account for them in the future. So always room to improve estimates.
That's quite interesting, looks to me that you combined simplicity with dramatic details to back up your claims. Very neat. :)
To me it just sounds like that engineer isnt very good at breaking things down.... which is kinda scary for someone that has an engineering degree.
@@wildwilie Most definity if you can't break down things to even an extent then that might be a concern.
I take off 30% for slacker programmers.
@@rickytorres9089 With such estimate he can break down many things so better run for cover :D
One of the things I've seen in the past is that its not just the cost of an individual project, but also how many similar projects are also planned. People tend to get good at things we do a lot. A one off project doesn't leave a lot of room for optimization, while something produced in the tens, hundreds, or even thousands provides both stable work, and ample opportunity for individuals and groups alike to accrue skill and make optimizations to how they work.
I do plant level project engineering, doing this process for 15 to 20 projects a year. Really good summary of the challenges of it!
I’ve written several papers about this so it’s always great so see more people talking about it. I would like to add one thing I’ve talked about a lot, and that is the way construction bids work they favor lower costs and hence underbidding. If you make a budget that covers those extra expenses you will likely get underbid by someone that says we won’t need those.
I would be interested in reading some of those papers... What are some of their titles? (I ask just about the titles because I don't know how TH-cam handles links in comments)
Facts.
@@vetlehenrikhvoslef1692 me too
I do cost estimating & design work for large scale bridge projects on the subcontractor side. One of the factors that you didn't hit on was bid items. Each item (steel, concrete, rebar ect.) is usually a unit price at time of bid and they all add up to the "lump sum" shown to the public. If a contractor sees that there may be an underestimate or need for more due to deficiencies on one item they may bid that higher and put others lower. At the time of the work then payment they are able to justify the larger quantity and higher payments.
Another factor is the owner. If there is an agency with multiple layers you have to go through to get anything done the costs will increase on all sides, at the expense to the taxpayer due to redtape they put in front of themself and to the general contractor due to delays that they will not be able to recoup.
I'm a professional estimator working on the pre-design side of estimating and helping owners create budgets. So much truth here, especially when it comes to people just throwing around a number without understanding what that number does or doesn't include, and people forgetting that estimates had a specific set of assumptions, and once those no longer apply the estimate can't be used in the same way anymore.
I too think spending more on service like what I provide and you provide is the answer 😁
There is a way to avoid this problem: inform the bidders that NOT the lowest bid but the next-to-lowest bid will be accepted. Suddenly the bids become more realistic.
They chose low bids not the lowest. I get where you are going but that would not work.
@@Max-ns8lc Either that's what they already do or it wouldn't work. Which is it?
@@PrezVeto Why do you think it can't be both? The whole reason this video was made was because whatever they're doing isn't working or at least isn't working completely to eliminate the problem.
@@rupert274 If they meant it wouldn't work _better_ than the current method, that would've been a much clearer way of expressing that idea. The suggestion made, however, _is_ a proven way of improving the sincerity of bids in auctions.
CSP - competitive sealed proposal. A weighted criteria which helps select “best value”.
The GC who wins could be the lowest price or they may not. This is a good delivery method for construction projects.
Or CMAR.
this video is amazing it's nothing this good has ever been on TV. You're far from the only one that has videos that far and exceeds what I've ever seen on TV, At least for nonfiction.
this is videos with literal and metaphorical everybody read between the lines
I’ve said it many times before, but your channel is so thoughtful and thorough.
It’s a real treat to get to listen to you.
I’m an explosives engineer in northern Virginia. We do mostly data center jobs these days and my god everything is constantly changing. From deciding to make the fiber optic duct bank deeper after we have already blasted it, to moving them 50ft in another direction after the blasting is done. It never fails and always costs the builder a ton of money either having us blast the new area or just hoeramming the rock out. We recently got kicked off a job for 8 months because the bald eagles nesting in the area began their mating season and we couldn’t blast or drill during that time. That was not accounted for in the timeline of the job by the GC.. lol
I feel your pain. I've also dealt with clients that can't settle on a single design decision. Never a good time.
It makes me happy to hear the respect for the ecosystem being done even if it may have thrown a wrench into the economics
I work in Architecture. Every single architect I've ever worked for has told me the exact same thing. "Never ask an Architect for how much something will cost to build, because we're always wrong."
Go ahead ask them, but also make sure they put their money where their mouth is. Fixed price and if the architect overruns, it's his problem not yours
@@MrFleischbrocken At the end it becomes your problem because even if you do that the project is overrun, project failed, time lost etc. You can take legal actions etc but what has happened is happened.
It would still be your problem because if the company building it can't afford the cost, they go bankrupt. Then you have a big half-built structure on your lot you have to pay to either tear town or finish anyways.
@@sayamqazi not to mention a lot of those winnings is going to go to the engineering firm and the contractors you hired out to do that job for their work completed. It's a race to see who gets stuck with the bag holding. We recently had that problem with a housing complex that we were working on, we were the civil utilities and we built three of them for them before that, on this fourth one they ran out of funding.
An architect? This is mandatory cariculum th-cam.com/video/C9pg2j2oGy0/w-d-xo.html&ab_channel=TheAestheticCity
Grady! You should do a related video on the reconstruction of the Salt Lake City airport and how the slowdown in traffic due to COVID allowed the project to shed years and literally billions of dollars from the project. A fun story about how changes in situations allowed a project to get done early!
We started reno work on a school the week they shut down for COVID. Was going to be months of afternoon work (25% labour premium), we were able to complete in a few weeks on day shift.
I loved that you added the note about how it's a good thing we increase the direct costs of projects by involving more people and restraints, because it stops us from externalizing those same costs to others. Very well put! That's a good reminder in an age where some of us are getting increasingly hostile towards even mild bureaucratic process.
I'm a senior project scheduler, having worked in the heavy construction industry (think power plants, etc) for over 2 decades. Cost & time estimates are often more art than science. I keep a sign in my office "Remember Cheops' Law" (Nothing ever gets built on schedule or within budget - thank you Heinlein.)
Availability of materials has a huge influence on construction costs as well. We had a roadway realignment and a parks project that were impacted midway through the project by a local concrete shortage due to large private sector factory being built at the same time. All kinds of mitigation costs crop up when you have to pause a project halfway through.
As a former resident of the Boston area, the Big Dig was worth every penny even though it was double the cost. It made Boston such a more livable and vibrant city, expanding access to the waterfront in a way that didn't exist when the Central Artery was blocking the way. I love visiting Boston now, especially the greenway now built where the road once was.
When I was planning on starting my own business I was given two things of advice
1) however, long you think it will take and, double it
2) however much money you think it'll cost, double it
ok
In the UK there is a rail project called HS2 that was originally going to cost £30-£36 Billion and is now costing around £100 Billion. The project started around 2010. The first phase is estimated to be completed in 2029-2033 and the second phase 2035-2040
And is now set to coatc150 billion. Regards, London, UK
An interesting case study is Heathrow Terminal 5; this was a £4 billion project that was completed mostly on time and under budget. What they did was change how they handled contractors, normally contractors take on the risk with their work, but BAA chose to hold all of the financial and legal risks themselves, which meant that contractors could focus their energy on getting the job done rather than ensuring they were legally protected from delays. They also offered a bonus scheme to contractors to encourage them to complete on time and within budget. The lack of risk also meant that vendors were encouraged to work together to find solutions rather than play the blame game on who should bear the cost of the solution.
As Brady mentioned in this video, the T5 project also benefitted greatly from an extensive planning phase to find problems before they occurred and mitigation plans.
I worked for a defense contractor (construction) in the mid eighties and a common problem was mistakes in old blueprints. A typical example was a vital electrical conduit that simply wasn’t on the blueprints. That may be less likely in the computer age, but it caused cost overruns all the time back then.
I'm a current construction electrician, mainly doing commercial work, the problem still persists, even though the drawings are all on computers there issue is now that people make change orders and want things done AFTER a lot of the work has already been done. Conduit installed based on devices it's going to, wiring pulled inside conduit based on current draw of the devices, and now they're saying we need more of this, some of that. Well space doesn't just magically appear in pipes, you cant cram more than a certain amount of wire in conduit. Happens ALL the time
I am one of those people who still live by my word, I don't get a lot of projects because my bid is usually higher than the others, but i have been told later that some of those customers said they wished they would have accepted my bid because the final cost was higher than I originally bid,
Difference between me and others is, I usually stand by my original bid, unless the customer adds things that weren't in the original bid, in my 40 years of construction, I realized that most companies quote jobs for under value just to win the contract, but once they win, they add the costs, by then, the customer is already locked in, and the way contracts are written now days, the customer doesn't normally have a choice to opt out after the project has started.
I am not a huge success in the industry because I am old school, and will always stand by my word, and a handshake still means something,
That being said, I also have to be cautious about who I do work for.
I wish life was a simple as it used to be, but unfortunately, people aren't as honest as they used to be.
A mate of mine who’s a Builder doing home renovations taught me how to quote. 1 - Run the numbers as you see them regarding materials and labour. 2 - Double that number. 3 - Add 20%. That gets him pretty close most of the time. 👍
Having been involved in bidding out municipal projects, I can tell you that one thing that the spread of bid numbers can possibly tell you is how much the contractor understood the project.
So reasoning with basic details of the budget breakdowns, not just the main bid's total? interesting.
Yup, I've worked on a project where one of the subcontractors missed the second floor on a two-story building while estimating. Their contractor held them to it.
@Hugh Askev
Which contractor understood better
Higher quoted one or lower quoted one?
I interned at a design build firm over the summer, which was cool to see as Im studying mechanical engineering, not civil. During covid, there were stories of new steel prices coming in every 4 hours. Imagine trying to put a bid together for a project to be completed in 4 years with prices changing every 4 hours...
I worked on a project that got put on hold due to covid. Once the project started back up, the cost of some steel profiles went up 130%.
@Qualified Not, before I got laid off, I remember doing estimates for precast concrete that would go into production about 6-12 months in the future. And the steel supplier would only give quotes good to the end of the day. That was in early 2019.
Massholes and Chicagoans are so used to seeing "billions" in construction budgets that anything less than US$750 Million is seen as a huge discount.
😂😅🤣 fellow Chicago person here.. you are so right.. the best part..MASSHOLES😊
Makes sense
“What’s a million?”
@@debbie9792 Being in Boston for a while made me realize the infected in The Last of Us are more upstanding citizens than real Bostonians
@@jtgd you are right too..prices have gone up🤔😉
payoffs are part of the economy in IL... they go up too with inflation...
Here in Germany the big companies often purposefully lower their estimates by excluding items they know are needed but not obvious to the bureaucrats administering the bidding process. That allows them to be lowest bidder. Later the public discovers that the bridge across river x actually didn't include a road surface on the top etc
As a former Bostonian, I'd say that the Big Dig has had an very positive impact on the city.
Check out the Interstate 70 reconstruction around Indianapolis back around 2007 or so. Built pretty much on time and on budget by making the contractor agree to a MASSIVE bonus for early delivery and a MASSIVE penalty for even one day late. Cooperation happened, and it seems to have worked.
There's a balance to be struck. Our local college had to drop financial penalties from their projects because contractors declined to bid on them.
@@thebigmacd Indiana struck the balance. With cooperation all around, the job was done early and on budget, netting the contractor a huge bonus.
The vast majority of archeological discoveries in the UK come from construction sites. It must be a nightmare for project managers and contractors as these discoveries are so common and they always result in unexpected delays.
Okay final comment for the morning: I think that it may actually be a feature that we start under budget and adjust it as we go. I've never worked on massive projects like that, but even smaller projects can be crippled by trying too hard to "get it right the first time." There is so much you cannot reasonably predict or estimate. Just do a sensible job and then adjust it as you go. Better that than getting stuck in planning hell. It's actually pretty amazing that we can do multi-billion dollar projects at all.
Interesting so if I read that correctly, be simple about it UNTIL/IF you need to be more complicated.
One of the best pieces of advice I got was from a project manager, "if you're always under budget and deadline then you're wasting resources."
@@DanielleWhite Is what you are saying is some tolerances and balances is key?
I really like the objective practical approach to this video. You’re statement about a lack of practical experience could be applied to a great many people who are well intended but highly inexperienced. Thank you!
I can not agree more with the end of the video. I work for very large and complex transport projects (new subway lines with fully automatic subways, most clients being public agencies). So it's very similar to the example chosen at the beginning of the video.
We also go over budget almost every time. I am myself a huge sponsor of more transparency towards our clients regarding our hurdles and uncertainties. I am convinced that it will improve the way clients see us. I had a long discussion with my manager this week, regarding a particular issue we had, and I managed to change his mind only partially but he agreed to follow something I proposed. There is no small victory and I was quite pleased with his reaction.
I've been on projects that come in UNDER budget. That's because we always over estimate to account for delays and changes that inevitably happen. And we build for wealthy individuals and not taxpayers.
Taxpayer money spends much easier than someone's personal cash.
Tell me you've never been involved in infrastructure builds that go through voter approval without saying it.
@@austinyun that's what I did say though
Under promise & over deliver once the expectations have been set.
Another aspect is because they tend to award things to the lowest bidder. So a lot of places will deliberately underestimate it, so they can secure the contract and then get the additional funding later once work is already underway.
More often, award to the " lowest responsible bidder" , which is to say their favorite bidder. Municipalities have no problem awarding crappy designs to their favorite contractors because they know change orders result in campaign contributions.
As someone that is currently doing a home remodel, I find this very interesting. Estimates on doing work have varied greatly, leaving me wondering what is this low bid leaving out and what is this high bid figuring in that others aren't? On the current part of the project, I am actually going with the highest of 4 bids. This part of the project is close to being completed and I am glad that I choose this contractor. Seeing what it actually takes to do makes me wonder what I would have gotten for the middle bids, and terrified of what I would have with the low bid.
Thank you.
I'm studying a short professional course in project management, and this video put a big smile on my face. This is beautiful.
Great video Grady. The scale of the unknowns is truly hard to comprehend at the beginning and hard to explain why they weren't considered at the end.
Another point I would add is, often estimate are right and projects do finish on time and on budget, but since what happened is what was supposed to happen, it's unremarkable (and not news worthy). People only remember the extremes,
Thanks for another great video!
These projects are planned at office commercial level without the involvement of the actual people physically doing the job. Main reason why most costs mount up. Ask the builder’s opinion on how long things take and how much it will cost. Maybe then the jobs will be priced more accurately rather than getting a massive shock in the end
The vast majority of jobs are awarded to the lowest bidder. If you propose a realistic bid accounting for builder's perspective, contingencies, material cost fluctuation, potential unforeseen conditions, etc. you are almost guaranteed to lose the bid. At least that is the case with public works projects.
You can make any construction project come in under budget, if the budget is big enough.
PREACH !
And then you don't get awarded the contract.
or cut as many corners as you can. bah, who needs 2x12s when 2x10s will work just as well. waterproofing? pfft just slap some roll rubber against the foundation it'll be fine
My dad used to be a civil engineer at Maine DOT and for a while, one of his jobs was to help select which bids to choose on projects. A lot more goes into it than people expect, and no, they don't just select the lowest bidder.
0:41 I had to go back and turn on captions to be sure I was hearing him right.🤣🤣💀
You’ve done a great job covering all aspects of cost overruns.
I work in building construction and can vouch for the complexity. It’s like planning a car journey from Europe to Australia and trying to design and plan for all the known roads, known towns, border crossings, ferry rides, etc. then you begin and find roadworks, rough seas cancelling boats, civil unrest breaks out, cyclones, etc.
The most successful projects I’ve worked on are Early Contractor Involvement / Engagement where there is an early tender process for rates, markups, attributes, and value proposition. From here, a Contractor can add much more meaningful value with realistic budgets, timelines, build complexities, etc. And the myth that it turns out more expensive is bollox. Clients can save thousands in PM and QS fees if the Contractor is doing it. Then I’m construction, the Contractor is usually open-book and has his reputation to uphold in keeping within his own budget.
As someone who has done many OPCCs and other project cost estimates (I'm doing one right now actually, once my lunch break is over) - this video hits a little too close to home😂 everyone wants to know how much its going to cost but no matter what number you give them it's hardly ever very close to what it actually ends up costing, even when you add in overages.
I have estimated many projects and I was directed to underestimate all projects in order to win the bid. My real estimates were always close. Also, I focused on the time rather than the costs to complete the projects. Time is always more important than price. There is no incentive for an engineer/estimator to over estimate a job and lose the bid. Also, especially government jobs, management/clients cannot keep from meddling in the project inevitably increasing time and money
As somebody with a civil engineering degree and construction experience…I love your channel.
There's a lot that wasn't brought up here too. I work in consulting engineering, we absolutely see other companies underbid us and the client coming back to us to finish the job when the consultant that underbid us basically doesn't finish the job because they didn't bid high enough. Its often a communication breakdown. For example the client says build me a car 2 different consultants will give two different estimates. One for a Ford raptor one for a Yugo. The client selects the Yugo because cost and not reading in depth enough. Then the client has to come back around to upgrade the suspension and add an infotainment system.
12:48 some of the delays to crossrail in the UK was due to finding archaeological sites during construction.
I think almost every project I've worked on in the last 2 years was budgeted 3-4 years before their start. As a result all of them were over budget before engineering even started.
I also end up having a lot of clients who want to change or add things to the project which add cost and then are amazed that the new estimate is higher than the number they had pre-enginerring. Then they ask you to do anything you can to cut costs putting me in an awkward spot where I have to figure out which of my standards I can skimp on without actually compromising the safety or functionality of a project. I think this is why there are so many awkwardly designed things in the world that I question.
Thanks to you and your videos, I have been able to understand civil engineering to a much deeper level. I have been watching your videos for +5 years, and they are always amazing!
Anyone considering getting into safety razors, cost saving tip! Dry off then store the blade you're using in mineral oil to drastically increase the lifespan. For me it at least tripled the uses I get per blade. Also excellent video as always Grady!
The blades are so cheap
Best informative vidio I have seen in a long time ! Unforseen circumstances and costs ! Are always overlooked ! But I have a new approach to projects now after years of cost overruns! And it is very simple to start with but gets more complex the more into a vision ! Rule one that I try to follow is this ,the right way not his way or her way but the right way with proper science! Number two ! Have meetings then leave the meeting without commitment to anything don't sign anything or agree to anything but to sleep on it ,let the problems and issues sink in and come up with solutions and then adjust the right way! It can't always be done but some people are good at pushing hidden adgenders and bulldozing projects thru to get you to sign up for their benefit not yours ! Also be careful of chair persons at meetings that push the meeting along without all the facts being tabled ! And these days a chair person can be paid to push your topic off the adgenda before you have got to the crunch point ! Chair persons can be bribed before a meeting to work for opposition ! The truth is utmost importance! And that normally is the right way ! It's a dog eat Dog world out there !
This is an excellent summary. I come from the contracting side, and while I was never involved with bids, I was involved with 'finding' extra costs during construction. In theory the contractor gets paid whatever he bid, but of course that depends on the type of contract. For larger civils jobs there is always going to be a degree of uncertainty, so there is an agreed method of paying for extra, unforeseen, work.
But there are also fixed price contracts for smaller works. In this case the theory is that the contractor takes the hit for unforeseen costs. But of course there are always means to be creative. Go back to the drawings and schedules to find something not clearly specified and give the client the option of paying for something substandard he hadn't anticipated, but what you have priced for. Or give him the option of paying for what he was expecting, but adding a nice markup.
Creativity isn't always that hard. One of my first jobs was on a site for the UK ministry of defence - a submarine base. We were building jetties with a few brick structures and service roads. The detailed drawings showed they had specified a certain brick manufacturer and brick type and finish. We had priced for this but when we told them we had only priced to cut standard bricks to the angles needed, they demanded special bricks be made for e.g. 45 degree corners. As we hadn't priced for specials I prepared a huge schedule of specials for the manufacturer. Of course the MoD had specified one manufacturer, so they added a huge markup, as did we. This was probably a small gain, but multiplied over several other claims, turned a high turnover, low profit job into a healthy one for us!
Others have pointed to low bids as being a problem. Yes, there are contractors who will bid low in the hope of claiming extras, but it is a fraught time-consuming process, not something any contractor wants to do if they could get a reasonable return without it. Saying clients should accept higher, more realistic bids is easier said than done. Those higher bids are probably from contractors who already have enough work in the pipeline. They bid to stay in the game for future contracts, but know that others will bid lower, so don't expect to get the work.
You could compare the cost overruns of large projects undertaken by corporations vs. that of government bodies to see if there is a significant difference (I.e. new office building vs. new city hall)
I am not an engineer...but I like to think that if I felt I could have chosen my path knowing what I know now, I may have been. Instead, I am a chef/owner of a catering company and I have to estimate costs for events that are happening at a future target date. Thanks for the content. I have some ideas on how to make our estimating process better.
Indeed I think what he is getting at is being more upfront and honest. Even if that more negatively involved. But as he said, not TOO much of it either!
The tricky part is compensating for price spikes due to shortages or just no availability. Best of luck
I love your very practical analysis & would love for you to do the same for the Kemper County, Mississippi power plant fiasco. Another project from decades ago which went even further over budget (percentage wise) than the "Big Dig" is the original Sedona, AZ sewer system . Dramatic effect on a small city. Both these projects had significant 'unanticipated' challenges around original designs. These are just 2 which affected me personally.
Here in Australia our biggest and most recent megaproject was the National Broadband Network (NBN) Project to supply Broadband to ALL of Australia. In 2007 it was estimated to cost about $20 Billion. Then we wanted to do Fibre to the Premises FTTP which was estimated to cost $38 Billion. By 2009 the estimate was $43 Billion and completed by 2020. By 2019 it had cost $51 Billion and in 2020 they added another $4.5B to the budget to make it significantly faster for about 1/3 of the country. All up it's estimated it ended up costing us $57 Billion dollars.
Excellent summary! As a civil engineer and project manager, I was involved in cost control in various roles on all sides of the table, and I can relate to these explanations. However, even fellow engineers do not understand why infrastructure projects today apparently always run over the budget, while in the past, that was (allegedly) never the case. And the recommendation around the 15 min mark is really to be considered. Every € you try to save by cutting corners in the planning phase, you will likely pay 10 times more in the construction phase.
Of course, in large critical infrastructure projects, you sometimes do not have the time for complete planning but need to start asap and fill the gaps later.
I went to school for civil engineering, took a break, then did carpentry/construction for almost 3 years. I will go back to school eventually, but I’m hoping my hands on experience will make me a better engineer, and maybe I’ll be able yo better estimate if it is ever my job to do so lol.