Additive Project Management: Adjusting to surprises before they reverberate and magnify throughout the entire project

Projects do not unfold the way they are planned.  There are almost always surprises that were not mapped in the pull-plan meeting.  These surprises are generally negative surprises in the sense that they risk busting budgets and schedules.  The larger and more complex the project, the larger the divergence from it’s expected budget and schedule will be as surprises reverberate throughout the project.  Let’s call these surprises the “known unknowns”.  That is, we’ve worked enough projects to know we will be surprised on the next one, even if we don’t know exactly what the surprise will be. 
There is a way to manage construction projects that creates value in response to these “surprises”.  We described the value creation in finance jargon in the context of a specific project in a previous article on Additive Project Management.  This article will describe the concept in more general terms so that the application is more obvious to a variety of projects. 

The Additive Project Management methods we will discuss are used in manufacturing and software development, among other industries, but they have not seen widespread adoption in construction for legitimate reasons.  A “typical” commercial construction project involves complex coordination in an uncontrolled environment when compared to a “typical” manufacturing plant or software development project.  Applying these methods to construction requires breaking the concepts down to their core and figuring out how they can be applied.  In order to respond well to “surprises” in a project, you must:

1. See the surprise, and
2. adjust to the surprise before it reverberates and magnifies throughout the entire project.

Construction has been working towards these two goals for some time.  We have more timely reports, more detailed digital models, laser scanning, augmented reality that can superimpose models on existing structures, etc.  The complexity of the coordination and the uncontrolled environment most projects are built in means that even the best models, estimates, and plans need to adjust to real world conditions once “surprises” start rolling in.  Stated more directly: The best models and estimates created in the office are fiction the moment we start building in the real world.

Right now, the construction industry is trying to react to surprises faster and smooth out the timing and budgetary impacts from surprises, but the solutions are doing little to keep the surprises from being magnified over the life of the project.  This could be why a high proportion projects still go over budget and over schedule, an effect that is magnified with the scale of the project.

What if we embraced the fact that surprises will happen and allowed the project to absorb and adjust to surprises rather than trying to smooth them out after the fact?  What does that even look like in a construction project?  This is what our fictitious project manager in the previous article was forced to do in the face of uncertainty.  She could accurately forecast the needed material and scope of work just two weeks out.  As the project unfolded, unexpected information was incorporated, next period’s material and scope of work forecast was adjusted.  It turned out that the project created significantly more value for her firm than if she had managed it the traditional way.

This increase in value is a result of turning the typical project management method on its head.  She couldn’t track the project’s progress using a budget created from the original estimate because the project changed as it went along (but no project does that in real life, right???).  Three-week-old accounting reports comparing her material and labor spending to the original estimate were out of date before she received them.  Estimates from field personal that reported “the first floor is 50% complete” were meaningless because the field didn’t have the ability to accurately forecast completion.  There could be updated plans to the first floor released next week.  Instead, she was forced to forecast, track, and update the material and labor needed over just the next two weeks.  Of course she forecast the rest of the project beyond the two weeks and had a budget, but she knew that it would need to be updated on a regular basis.  Breaking the project into two-week increments allowed her to adjust as new information became available.  It allowed her to achieve two of the goals from Additive Project Management listed above:

1. She could see the surprises, and
2. adjust to them before they reverberated and magnified throughout the entire project.

The difference here is subtle, but the resulting value created from this mindset shift is substantial.  Current project management methods track progress relative to a budget created from the original estimate.  Not only is the basis of comparison (the estimate) fiction once the project starts, the information used for comparison is inaccurate and delayed.  Your field personal may report that you are 50% done with the first floor and the accounting department may tell you that you’ve spent 20% of your budget, when in reality you’re 20% finished with the first floor and you’ve spent 50% of your budget.  You can be well behind schedule and over budget, and it not be clear that it is happening when you rely on this kind of information.  Managing a project this way is like driving a race car while looking in the review mirror.  We shouldn’t be surprised that we crash so often (i.e. bust budgets and schedules).  We need to look out of the windshield at the actual road ahead.  This means shifting our focus to the materials and the skilled professionals who specialize in installing the material.  Forecast exactly what material is needed and how long it should take for instillation each day of the project.  Go into the field regularly and see if the material is in fact available for instillation and if it is being installed according to your forecast.  If reality doesn’t match your forecast, find out why, fix the problem, and update your forecast.

One of the biggest practical differences between the current project management practices and Additive Project Management is this: We would not release 70% of the material at the beginning of the project as if the original plan and estimate were correct.  We know that the actual project will be different than the planned one and if we order most of the material up front, we are likely to end up with a pile of unneeded or damaged material while the field spends valuable time identifying and ordering what it needs to complete the project.  Instead, have material delivered to the job site in small increments and be ready to adjust your forecast as “surprises” happen.  Vendors stand to gain from this system as well.  It results in less returned material and less need to hound them for backorders.  They will know exactly what is needed and when it is needed, and can deliver as required.  Vendors are looking for ways to differentiate themselves, provide better service, and earn your business.  This gives them the opportunity to do just that.  Vendors we’ve worked with loved this system.

Additive Project Management is all about giving your skilled trade professionals the material and tools they need, when they need it, and getting out of their way.  They know how to adapt the architects’ and engineers’ models to real world conditions.  Let them practice their craft and watch the project absorb and adjust to “surprises” without going over budget or over schedule.  In fact, you may find that you beat your original bid-based budget.  That budget contains padding for lost, damaged, incorrect, and duplicated material, as well as labor for rework that we know will be part of the project.  Additive Project Management can eliminate this waste.  You may even experience positive surprises with these methods when clients find themselves under budget towards the end of the project and request change orders for value-added options.

Additive Project Management can be implemented within existing firms using currently available technology with a bit of guidance from experienced practitioners.  We are working on digital tools to make Additive Project Management as straightforward as possible, and we are happy to share our experience with your team.  Contact us and let’s talk about how we can help your team create more value for your firm while providing better service to your clients.

-Steven Stelk, PhD, FP&A; Financial Strategist, Cycle Rate Performance