Why Construction Projects Always Go Over Budget
čas přidán 20. 03. 2023
Not just megaprojects suffer from our inability to accurately anticipate the expense and complexity of construction...
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From preconstruction costs to inflation to unexpected site conditions, there are a lot of reasons construction budgets rarely align with construction costs. Let's talk about it!
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Practical Engineering is a CS-tv channel about infrastructure and the human-made world around us. It is hosted, written, and produced by Grady Hillhouse. We have new videos posted regularly, so please subscribe for updates. If you enjoyed the video, hit that ‘like’ button, give us a comment, or watch another of our videos!
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🪒 Get a precision razor and use code PRACTICALENGINEERING for a free pack of 100 blades: bit.ly/3CWiWJP
From preconstruction costs to inflation to unexpected site conditions, there are a lot of reasons construction budgets rarely align with construction costs. Let's talk about it!
Watch this video ad-free on Nebula: nebula.tv/videos/practical-en...
Signed copies of my book (plus other cool stuff) are available here: store.practical.engineering/
Practical Engineering is a CS-tv channel about infrastructure and the human-made world around us. It is hosted, written, and produced by Grady Hillhouse. We have new videos posted regularly, so please subscribe for updates. If you enjoyed the video, hit that ‘like’ button, give us a comment, or watch another of our videos!
CONNECT WITH ME
____________________________________
Website: practical.engineering
Twitter: HillhouseGrady
Instagram: practicalen...
Reddit: www.reddit.com/r/PracticalEng...
Facebook: PracticalEng...
Patreon: patreon.com/PracticalEngineering
SPONSORSHIP INQUIRIES
____________________________________
Please email my agent at practicalengineering@standard.tv
DISCLAIMER
____________________________________
This is not engineering advice. Everything here is for informational and entertainment purposes only. Contact an engineer licensed to practice in your area if you need professional advice or services. All non-licensed clips used for fair use commentary, criticism, and educational purposes.
SPECIAL THANKS
____________________________________
This video is sponsored by Henson Shaving.
Stock video and imagery provided by Getty Images, Shutterstock, and Videoblocks.
Music by Epidemic Sound: epidemicsound.com/creator
Tonic and Energy by Elexive is licensed under a Creative Commons Attribution License
Source: • Elexive - Tonic a...
Producer/Writer/Host: Grady Hillhouse
Editor: Wesley Crump
Production Assistant: Josh Lorenz
Script Editor: Ralph Crewe
Background Painting: Josh Welker
Graphics: Nebula Studios
Komentáře: 2 341
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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.
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 💸!!
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!
"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
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?
@FreeF Free 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.
@Greg 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? 😂
@FreeF Free 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.
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.
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.
@Soriel 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.
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.
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? 🦻
@Aryan Parikh lip reading maybe?
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 Either that's what they already do or it wouldn't work. Which is it?
@Grover 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.
@Sean Smith 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.
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
@Peter Temporal 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).
ok
"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.
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.
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.
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.
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.
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.
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)
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.
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.
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!
As a former Bostonian, I'd say that the Big Dig has had an very positive impact on the city.
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.
As a guy who is not an engineer, not in school to be an engineer, or ever plans on doing anything related to engineering. I love this content lol.
I was an engineer on the Big Dig from 97-99. It wasn’t uncommon to see stuff like three guys watching a robotic welder performing operations on the slurry walls. And everyone seemed to charged 2x hours to the project. I remember being amazed that it actually finished. The cost was not suprising 😅
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.
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.
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
I’ve really come to enjoy the topics you cover in your videos and how it relates to things I’ve learned working in the commercial construction industry. Keep up the good work
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
I do plant level project engineering, doing this process for 15 to 20 projects a year. Really good summary of the challenges of it!
Putting some humor into a very intelligent, well presented show. I’m hooked.
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.
@Helium Road When I was reading that I was like, "Is this actually a real story?" Honestly, he sounds like a second Edison don't @ me...
@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.
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!
At Seatac Airport they had a Sky Bridge estimated at 375 million, go over budget by 700 millions dollars. I would love to see a video on this.
I'm studying a short professional course in project management, and this video put a big smile on my face. This is beautiful.
I'm an ironworker, and I will agree any day of the week to spend more earlier in the process. Mistakes do nothing but get bigger and more inconvenient the longer they lie.
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 so interesting. There should be a meta-analysis to get an estimate of by how much usually construction projects costs are underestimated.
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 always say “oh that’s not hard” and “that’ll take three weeks.” And also “multiply my estimates by four if you want something resembling reality.”
I've always been impressed by the way you break down complicated topics and provide just the right degree of detail with am eye to what's practical. So I suppose I shouldn't have been surprised to see this topic. But my first thought was "Oh man, how is he going to cover something this huge". Amd honestly, you nailed it! Thanks for another great video!
The trap I fall into, and that I'm always trying to get better about not falling into, is estimating based on everything going perfectly. Things almost never go perfectly. Now a days when someone is planning a budget and asks me how long something will take I take the first figure that pops into my head and almost double it and I often end up being much, much closer to reality.
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’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 CS-tv handles links in comments)
Facts.
@Vetle Henrik Hvoslef me too
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.
Yep, yep, yep. I just grinned and nodded the entire time. Grady, this was thorough, thoughtful, and well-communicated. Well done.
My hometown of St Louis did a large interstate project in the 2000s. They actually were ahead of schedule and under budget.
I always appreciate your in-depth videos to better understand how construction is done and what challenges are faced when doing construction jobs 💪 Most of my friends always complain about construction jobs but I always thought there are good reasons for why projects take so long etc. Thank you for your videos!
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.
@Sayam Qazi 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.
Reminds me of an old quote: "We do this, and the other thing, not because they are easy, but because we thought they would be easy."
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.)
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.
I always love watching Grand Designs and taking bets with whoever is watching with me on how much longer it's going to take and how much over budget it's going to be. As a general rule of thumb 1.5x the Time & Money is a good result, most is 2x and I've seen it go up to 3-4x on other projects.
This video feels especially relevant after the Austin Transit Partnership announced their new plans for Project Connect that have absolutely gutted the original plan due to ballooning costs from all parts.
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.
i remember talking to my cousin who was head of facilities at a large hospital. they were putting in a new wing . i talked to him about budgets and remember him saying matter of factly oh yah they add 1.5 million for the lawsuits into the cost estimate. he said there are always lawsuits from contractors.
When I used to have to try to figure out how long a project might take, we had a saying: The first 90% of a project takes 90% of the time... and so does the last 10%! Not that accurate time wise but it conveys a key idea that it takes more time than you expect.
I hope you talk about the problems experienced in that tunnel like huge concrete ceiling panels dropping on vehicles passing below.
Great video! Very insightful for entry level project engineers. Keep up the good work 🙂
I watched a very similar video from a non-engineer perspective. Very interesting to see the difference. They were discussing how humans are bad at estimates and you talked about the challenges such a task entails; including everything that could and will go wrong.
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.
@Ricky Torres With such estimate he can break down many things so better run for cover :D
The Milwaukee Marquette Interchange rebuild project actually DID get finished several weeks AHEAD of schedule in 2008 AND UNDER budget! Probably the only modern project to do so.
Every project is unique, there are so many variables it is mind boggling. Changes are inevitable, unless the documents are perfect, and there are no surprises on site. As a contractor I hate change orders. They delay the project and tie up resources. The best jobs are the ones where everyone works together to make sure critical milestones are met and problems are sorted out quickly. Unfortunately this is not usually the case. A cooperative team that includes the client and the constants can make the difference between a good project and a disaster.
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.
@Patrick Dohm 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.
This super informational video is yet another reason why this remains my favorite CS-tv channel. You explain a complex topic so concisely and make it very interesting. 👍
Part of the reason you don't see as many overestimates to the project cost is if the estimated cost is too high, the project doesn't even get approved in the first place.
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
It's good to know this issue is true in all forms of engineering.
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. 👍
Honestly compared to some of the project failures I've heard about in IT spending double the budget is not a bad deal at all
Great video and very well explained. As a project director this really resonates with me. Btw I'd be getting a quantity surveyor across those estimates especially if an engineer has prepared them 😉
As a design professional, I relate to this so much - so many factors go into the budget for a project and there are so many variables that can affect the budget. Even if one can get certain costs with reasonable certainty, time escalation and market conditions will change things with the passage of time. Projects take many years between feasibility and actual construction, original budgets escalate significantly over 5-10 years. The client and/or funder never really wants to see the costs going up and the need for a bigger budget either.
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 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.
Thank you from the bottom of my heart for this reasonable and rational based video!
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!
Excellent video. This aspect of construction is not shared enough with those outside of the industry. Keep up the good work.
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!
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
@RAI FIKAR J 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...
I recall a statement from a engineer that worked for our town, " You can have high quality design, Low cost, and have the job don quickly, but can only get two at a time.
I was in the military and was in charge of overseeing construction of a new building. Several of the contractors didn’t read the contract info carefully enough and completely painted themselves into a corner. I had the sad privilege of getting to inform them that they’d done the work all wrong and had to redo it.
Many projects are released for bid with 80% completed drawings. That means there is a lot of opportunity for vague cost estimates. Then as soon as you cut into the soil you start to discover "unforeseen circumstances"
Funny enough I first watched this channels concrete reinforcement video for anassignment when I was an architecture student a few years ago... Fast forward 2-3 years and a major change later and now Im a civil engineering student watching purely watching these videos for fun and deeper understanding!
I've been looking at Henson razors for a week or two now and was going to get them earlier today. I decided to wait until tomorrow, and I'm glad I did. I think I would ultimately have gone with Henson regardless, but now I get an extra 100 pack for free and I get the recommendation of you to go along with it.
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...
@ondono 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
@GA1 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 🤦♀️
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 CS-tvs I find them informative and it keeps me thinking even if I am not involved. Mike
Working in construction. One of the most expensive things I’ve seen is people rushing things or cheating out on labor & materials then having to come fix it later because of those decisions.
Great stuff! My own experience also notes: not only do the higher, more realistic bids not win awards, but also, nearly every company’s management is trying to get you to work the price down, not up, before it even goes out the door to the client. (And God forbid somebody gets the Sales folks involved!) If you dare to identify a budget contingency or schedule contingency as a percent, management will generally dictate a reduction to the percentage, with no in depth review of how the number was determined. And finally, schedule: in any network of dependent tasks, schedule gains are rarely passed on, but delays almost always are. Critical path/PERTT planning pretty much locks this fact in. There are other scheduling methods but they are not often used for big infrastructure projects. And thus, when you almost inevitably overrun schedule, you’ll very likely overrun cost, because many overhead roles (including the project manager) have a cost essentially dependent on days elapsed.
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.
There is a difference between knowing what you want done, and knowing how to do it.
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.
@Practical Engineering 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.
@Practical Engineering 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
Love this channel!!! Do you know any large project that was finished under budget? What did they do differently and what were the circumstances?
Love the videos Grady. Keep them coming. I think you hit the nail on the head pretty early in this one. Enginerds. I'm an electrician. Almost 30 years in the IBEW now. And things are getting worse. Last job and current project have had beautiful 3D CAD models created by enginerds. OK, expecting the computer equipment to see them to survive in the field is the first fail, but... Seriously? Go start wrapping a rope around a tree. 1/4 turn, you can pull it. 1/2 turn? Yep. 3/4? OK, but getting harder now. Full wrap? Umm maybe? NFPA NEC has a limit of 360° of bend in conduit run for a good and practical reason. And yet the enginerds are producing the gospel 3d model for the job with 5 90° bends, 2 offsets and a kick. With no additional pulling points. In a run that is too long to be pulled. Oh, and the current project is in an EMP shielded enclosure, so adding supports for an additional junction box requires congressional approval and the blessing of the Pope himself before we get into the cost of the additional materials and labor. Why do I only get paid labor wages to do the labor and re-engineer the failed designs? Pretty easy to see where the cost overruns come into play when the designs aren't up to code or reality to begin with.
The fact I follow your content and also live in Boston- the immediate pairing of that thumbnail with the title really hit home. I started studying at Emerson college in 2014- I forget the exact timeline… but they were supposed to have completed the Longfellow Bridge in maybe two years MAX- I don’t think it was finished until after or around when I graduated in 2017 😂
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I worked on a US Made Only public works project where most of my time was spent drawing and detailing and communicating and getting approved orders for basic parts like bolts and screws to get them made by American machine shops simply because German or swedish products just weren't good enough. Made the cost of the project significantly higher than they projected because they didn't realize the scale of a lack of us products. Some of the things we just substituted foreign materials without them knowing simply because we wanted to move on from the 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.
I learned my leasson decades ago and stopped with the under bidding, after a few years people figured out my estimates were much closer to the actual final costs and started coming to me more and more often. Good luck out there, the thieves are among us.
I like how you tried to keep a straight face saying on time and under budget. I agree there are a lot of variables when comes to big projects.
The mayor of my town once said that whenever a contractor says that a project will involve "novel" or "innovative" technology or methods, you can be sure that the project will be plagued by problems and cost overruns.