Delivering Accurate Cost Estimates Through Risk Informed Decision-Making

Home to the 102nd Training Division (Maneuver Support), Fort Leonard Wood, Mo., trains more than 80,000 military and civilians each year. These residents are served by the General Leonard Wood Army Community Hospital, which is currently housed in a facility over 40 years old and located on a constrained site. To provide a medical center to support the installation’s healthcare needs long into the future, a complex design-build project was envisioned that would include a 235,376-ft² hospital, 193,332-ft² medical clinic, 20,459-ft² central utility plant, five-bay ambulance garage, and supporting facilities.

To achieve an awardable project, however, a comprehensive and accurate cost estimate was required. During design, the team’s risk-driven project management process ensured proactive risk monitoring at every phase and created a shared view of the situation between all stakeholders. The result was a comprehensive, well-documented, accurate, and credible cost estimate that produced an awardable project as well as early alignment between all stakeholders. This enabled the project to bypass the design charrette and move right into technical review of the proposal, saving critical time and effort.

DEALING WITH UNCERTAINTY

In today’s rapidly changing environment, projects frequently must be designed and estimated in an extraordinarily short time, with a notable amount of uncertainty. Large federal hospital projects are particularly challenging and have a history of being delivered late and over-budget.

Improving the accuracy of Department of Defense cost estimates requires teams to use best practices, understand and use cost and schedule risks, and commit to communicating and sharing vital information to deliver an awardable project. Stakeholders need to be intentional about doing things differently as early as possible, sharing and utilizing lessons learned, focusing on risks, engaging industry, and collectively owning the cost estimate throughout the life of the project.

Establishing a cost and schedule risk analysis (CSRA) and resulting contingencies becomes critical to produce quality total project cost. The CSRA is just a portion of the risk management strategy, however, which makes it important to begin this process early in project development so that risks determined over time can be managed, planned for, and mitigated as much as practical to remain within the appropriated budget.

Lastly, firm-fixed-price contracts place maximum risk on the contractor and full responsibility for all costs and resulting profit or loss. Poorly designed requests-for-proposal and minimal industry day engagements limit the government’s ability to solicit feedback about a procurement, which would help to reduce contractor risk that can increase construction award dollars.

CONTINUOUS COLLABORATION

To address these challenges on the General Leonard Wood Army Community Hospital, the project delivery team shared and utilized lessons learned from recent similar government hospital projects during the DD1391 programming effort. The intent: to develop a parametric cost model with better data.

Fact-finding sessions between all stakeholders enabled the team to minimize wasted time and effort exploring ideas and options that were unsuccessful on previous projects, creating a path for success as this funding request went to Congress. The DD1391 programming and design-build request-for-proposal estimate was provided by the same firm, which preserved intrinsic cost knowledge of the project.

Additionally, the team’s risk-driven project management process ensured proactive risk monitoring at every phase and created a shared view of the situation between all stakeholders. The project delivery team was encouraged to share risk concerns and communicate to define and target high risk areas for management and mitigation.

Risks always will change during the course of a project. As a best practice, stakeholders need to reassess them at each stage.

Improving Cost Accuracy. The purpose of the CSRA was to develop an accurate contingency amount to improve accuracy of the total project cost, provide a range of possible costs, and manage risks. The CSRA process developed a risk register during a formal two-day project risk identification and assessment meeting where more than 90 risks were identified, with 19 considered significant. A Monte Carlo simulation then was run on the 19 significant risks to determine the contingency amount to use for comparison of the current working estimate to the programmed amount.

The CSRA relied on the project team to consider these risks while developing the project requirements. Tasks performed included breaking the risk down to a point where it was actionable, developing risk countermeasures (primarily RFP technical requirements), and monitoring and reporting the results of the countermeasures.

For this project, leadership teams were deployed to handle these tasks. The teams were comprised of subject matter experts from the customer, key stakeholders, government design and construction staff, and the project manager. They broke the risks down, developed proposed countermeasures or solutions, and then transferred the solutions to an outstanding items report where they were monitored weekly by the project delivery team until the risk was mitigated.

Acceptable Tolerance Levels. As project leadership teams completed the assessment and countermeasures tasks, they moved into the monitoring phase and a new project leadership team was formed to address a new risk. This process continued until all significant risks were being monitored and mitigated within acceptable tolerance levels.

Furthermore, the U.S. Army Corps of Engineers organized multiple industry engagements and incorporated many industry partner suggestions in the acquisition strategy. This solicitation was posted as a full and open (unrestricted), two-phase design-build acquisition—enabling early contractor involvement to achieve a more collaborative relationship and for collective decisions regarding risk to be made early on by all parties. This allowed the quantification of cost and schedule risks that were reflected in the independent government estimate.

THOROUGH AND DETAILED

Access to lessons learned and a collaborative group of stakeholders during DD1391 programming provided a comprehensive, well documented, accurate, and credible budget to start. Performing a CSRA to assist with contingency development and managing risks was a critical tool in the cost engineering and risk management effort. Also, staying engaged during development of the design-build request-for-proposal estimate with the same team, coupled with a high level of commitment to creating conditions focused on risk informed decision-making, resulted in an accurate estimate and successful project. Additionally, early contractor involvement mitigated risk and allowed three construction firms to submit requests-for-information and make collective decisions regarding risk prior to the final request-for-proposal, increasing the likelihood of success.

The final proposal was in such alignment with the team’s technical expectations that it moved right to technical review, skipping the design charrette. The $295 million hospital complex is planned to be completed in 2024. It will rival those found in the civilian sector while also paying homage to the rich history of Fort Leonard Wood.

Shay Kelly, CCP, M.SAME, is Director of Business Development, and Brent McElrath, CCP, LEED AP, M.SAME, is Manager of Preconstruction Services, Crawford Consulting Services. They can be reached at sjkelly@crawfordcs.com; and bmcelrath@crawfordcs.com.

[This article first published in the May-June 2022 issue of The Military Engineer.]