News + Ideas

Sourced from Commercial Construction and Renovation, Issue 2 (pages 20-22)
by Adam Wemhaner, Senior Vice President, MGAC

March 2023

The role of project planning is difficult to overstate, especially when the traditional ways of working have been completely upended in recent years. Fluctuating material costs and supply chain shortages are leading to protracted schedules and unpredictable budgets, and this is not changing in the near-term. It has become apparent that for a project to be completed successfully—on time and on budget—all pieces must be placed together as early into a project’s lifespan as possible.

Projects today are requiring a level of proactivity and preparedness from all project teams that owners and project stakeholders are unaccustomed to. With supply chain constraints affecting everything from budgets and lead times, having a detailed plan in place can be the deciding factor between a project running optimally and one that will be difficult to navigate throughout each stage of its lifecycle, with the potential for financial exposure.

Getting ahead of issues, such as unrealistic constraints or expectations, workforce issues, budgets, and schedule timelines is imperative, and planning ahead will help mitigate and alleviate the impact of these challenges on the project.

Working through this pre-planning is a great way to establish trust and credibility with the client team. This trusting relationship is important from project onset, particularly as it pertains to those clients who have a specific budget or proforma in mind. Invariably, there will be an issue or item that will impact the initial budget, which will require skillful communication to convey effectively.

According to a January report from the Association of General Contractors, construction material supplies alone were up 20% from the previous year, and the prior year we saw incredible spikes in lumber and then variability across several other raw materials that impacted construction costs across multiple trades.

When working with construction budgets, every line item is up for scrutiny. An experienced project manager will be able to identify what aspects of the project may be high-risk and whether the budgeting is adequate, and then continue and refine the analysis as the design develops.

For owners, having effective financial processes and administrative skills, which are essential project management duties, is crucial for project success. This includes all of the key project related items, but also frequently includes a working knowledge of bank operations, the filing of paperwork, requesting jurisdictional approvals, and organizing items so that they will be readily accessible and available to other members of the project team. One mistake in paperwork, as an example, can result in costing projects thousands of dollars.

The recent pullback from lenders, along with fluctuations for inflation and interest rate increases, has impacted project funding globally. According to a September 2022 Bloomberg article, lending from the biggest banks is on pace to likely be down 50 percent in the second half of the year compared to the first six months of this year.

One strategy for mitigating supply chain issues is to plan for the early procurement or pre-orderoing of various materials and equipment for the project. This should be identified from the beginning to meet and stay ahead of deadlines. Working with a client’s standards or with the design team on new, custome projects, the more we can identify the at risk items and work towards a specification as early as possible will help to mitigate these exposures.

Regardless of one’s history or relationship with a contractor or subcontractor doing this type of procurement, it can no longer be taken for granted that all materials will be available within four to six weeks like the industry became accustomed in prior years. To have materials and equipment ready when they will be needed now requires that procurement to happen several months earlier than folks are accustomed to. This is by no means a reflection of anyone’s own merit or abilities; the unpredictability miring the post-pandemic supply chain will often catch them by surprise as well.

Taking advantage of this process does require planning on contracts and defining these activities up front. This impacts how the design team, contractors, and sub-contractors are engaged. Mapping out these strategies is part of the pre-planning and validation on budget, schedule, and delivery approach, to ensure the entire team is positioned for success.

The benefits that can be reaped by preparing a project in this way, however, is that all materials will be ready when they are needed with a significantly reduced chance for last-minute changes. While this admittedly could require storage capabilities — in addition to the costs associated with it — the peace of mind and potential capital savings greatly out weigh these costs, particularly as this storage space can be used across multiple projects.

Virtually all sectors of today’s real estate industry either meet or exceed their pre-pandemic figures, so it is far more financially unviable for multimillion-dollar projects to be held up by items as small as doors.

As the construction industry adapts to the new ways of working, it is an opportune time to introduce some improvements in delivery strategies and new methodologies to avoid the linear thinking and legacy approach to material procurement. By implementing additional levels of pre-planning, it will set a new precedent, process, and expectations, therefore creating standards from which the industry will only benefit in the future.

Click here to see this byline in the May 2023 issue of the Mann Report (page 62).