For many years now, Donald Cant Watts Corke (DCWC) has been an advocator of certainty in high risk and high value projects, particularly in the infrastructure sector. Recently we have found some concerning trends in cost planning and overruns for major infrastructure projects nationally.
The impacts these cost overruns have run deep with consequences. Affecting not only key project stakeholders, but also placing a strain on the relationship between communities and the Government, in its ability to effectively deliver on the future needs of local populations. These trending errors can be easily overcome by abiding by three simple principles in getting project right from the start.
Department of Treasury and Finance Guidelines
Guidelines for preparing business case budgets for major infrastructure projects in states across Australia have been articulately prepared for use by consulting firms, and yet for various reasons, this advice continually gets ignored by construction service consultants. For example, the Victorian Department of Treasury and Finance (DTF) budget estimating guidelines specifically state that there should be a process of design review by appropriately experienced personnel in order to determine that the cost estimate captures all relevant scope, reflects good practice design solutions, construction methodology, constraints and program scheduling etc. Budgets should be reasonably based on professional judgement and experience, and that each project can be achieved through good planning of hard and smart work.
Despite the above we continue to see audited examples of projects where relevant scope has not been captured and where budgets are inadequate. A baseless application of professional judgment through overlooking Government guidelines, that in turn stimulates cost overruns in client projects.
Inappropriate Use of Contingency Allowances
This leads to the second most common error that we see in the preparation of budget estimates; the use of contingency allowances for relevant scope that was missed. Contingency allowances should be derived through the management of both inherent and contingent risk and therefore by definition, are not to be used for missing scope items.
Contingency allowances are not to be used for missing scope items, but for uncertainty in the cost estimate for quantities rates and construction methodology, and for site specific (contingent) risks bespoke to each individual project.
Inappropriate Use of Historic Data
Another common error that often comes up when reviewing budget estimates for major infrastructure projects is the inappropriate application of historic cost data. Applying outdated unit rates is a mistake in itself. But the problem is compounded when these same rates are incorrectly applied to the wrong construction activity. This error can be easily avoided by following a standard set of Plain Language Questions (PLQs).
Experienced consultants with the appropriate knowledge and understanding of such matters will then be able to answer these questions correctly and apply the historic data to the applicable activities.
There are of course, many factors that contribute to cost certainty but as an organisation, DCWC will continue to advocate that our clients focus heavily on the scope, constructability and operational requirements prior to projects going to the market.
DCWC has eight services dedicated to providing project certainty in all areas of a project's development, including project management (delivery), health advisory, engineering services and infrastructure. Our diverse talent pool that continues to grow with Australia’s leading industry professionals is critical to providing certainty at an integrated level, providing the clearest assurance and confidence with director involvement through every step of project planning and delivery.
Peter Gill, Managing Director of Infrastructure is ready to discuss your next project and our involvement as a top tier project services provider, delivering great outcomes through effective planning and accurate cost planning.