Forecasting Workflow Part 1 – Setup

You’re a Project Manager. Your next assignment is a $55M mechanical subcontract for a big client. The Client has asked you for a Billing Breakdown and a Construction Schedule. And your boss wants a Budget on her desk pronto. What should you do first?

I suggest the Budget.

This post explains how to set up a Budget, the first and arguably most important part of Financial Forecasting for a construction project .

The Workflow in 5 Steps

Before we get into the budget per sé, I’d like to illustrate the overall workflow and explain some it’s key elements.

  • Step 1 - Teamwork. Bring your Estimating team and your Production team together.
  • Step 2 - Estimate Breakdown. Get an Estimate Breakdown from your Estimator.
  • Step 3 -  WBS. Create a Work Breakdown Structure, in collaboration with your Foremen.
  • Step 4 - Labour Plan. Ask your Foremen to use the WBS to create a Labour Plan.
  • Step 5 - Budget. Use the Estimate Breakdown and the Labour Plan to create a Budget.

The Workflow Illustrated

The Workflow Explained - WBS

A Work Breakdown Structure (WBS) helps you and your Foreperson visualize the work, by breaking down the project into manageable chunks.

The WBS also lays the ground work for your Billing Breakdown and the Construction Schedule. So, by creating a WBS early — for the Labour Plan — you save time later for the Billing Breakdown and the Construction Schedule, in effect killing three birds with one stone.

The WBS is created in collaboration with  the Foreperson. Start by supporting yours. Ensure they have drawings and specs for the project, and time to conceptualize a plan. The plan should be expressed in a table with two columns:

  1. Labour Code
  2. Description of Work

Review it, revise it, and start over if need be. Depending on your Foreperson’s experience, you may have to go back and forth many times. Hopefully, each iteration is better than the last, until the structure is rock solid.

Sidebar on Types of WBS's

There’s more than one way to carry a canoe. I suggest that you and your Foreperson brainstorm about how to structure the work. Here are some types of WBSs to get the discussion started:

  1. Typical Tasks – Typical Tasks are the money makers, which makes them the best type of labour code, in my opinion. Typical Tasks are also the simplest in terms of tracking and reporting. By “Typical Task” I mean work performed more than once on multiple floors or in multiple rooms using the same material and the same tools. That is, the same work performed over and over again.
  2. Floor Codes – Floor Codes here can also mean floor numbers, floor areas, or room numbers. For example, a Chiller Room might have its own labour code. This approach is good for rooms or areas that are not typical.
  3. System Codes – System Codes are the ones that mimic design, and treat systems separately. For example, Heating and Chilled Water Systems: Heating and Chilled Water Systems are naturally — and necessarily —  separated in design. Not so much in construction. If the heating water mains are right beside the chilled water mains, and if the material for both systems is black pipe, and if all the pipes share the same trapeze hangers, do you think the fitter treats the Heating and Chilled Water Systems separately? Keep this in mind for the quiz coming up.
  4. Maximum Hours – Some companies impose a cap on a Labour Code’s budget labour hours, presumably to encourage their Forepersons to break down a large project into smaller, more manageable chunks. I don’t like arbitrary caps because imagine a project with an estimated 100,000+ hours. Let’s say your company has a policy that caps the budget labour hours for each labour code @ 250 hours. That is, no Labour Code can have more than 250 hours. The resulting number of Labour Codes would exceed 400!  That’s too many, in my opinion, especially for the poor guy filling in Time Sheets each week.
  5. Standard Labour Codes – Not to be confused with Standard Cost Codes, which are actually beneficial. For example, a Standard Cost Code for copper pipe and fittings — for all projects — makes negotiating bulk purchases easier. Very cool. But having a Standard Labour Code for say domestic cold water — for all projects — creates no benefit that I can see. Standard Labour Codes might actually be detrimental to the planning process because they might influence a Foreperson’s thinking, and how they visualize the project. Remember, buildings are not like hamburgers; we’re not makin’ a million of ’em.
Every building is a prototype.
Geoff Smith
EllisDon Construction, President and CEO

The Workflow Explained - Labour Plan

A Labour Plan is literally an extension of the WBS. The result is a table with 5 columns:

  1. Labour Code
  2. Description of Work
  3. Planned Hours
  4. Planned Units
  5. Unit of Measure (UOM)

Case Study - Typical Task Example

Consider an office tower with 50 typical floors. Here’s a sample floor plan, marked up to highlight some of the tasks on the floors…

The tasks are listed here, in this corresponding Labour Plan. Warning: this is only a part plan and does not represent all the mechanical work required in the building.

The tasks listed are Typical Tasks, meaning they happen more than once. The Foreperson has identified how many times they happen (Planned Units) and the units by which progress will be measured  (UOM).

This is a good start. So far, the Labour Plan is concise, yet communicates a clear picture:

  1. The goal in terms of hours per UOM (because we all know how to divide)
  2. The assignment for each Work Crew
  3. The sequence of work

The Foreperson can now take this portion of the Plan and divvy up the work;

  • Work Crew #1 is assigned the Inserts, right on up the tower, followed by Work Crew #2.
  • Work Crew #2 is assigned the Hangers, right on up the tower, followed by Work Crew #3.
  • And so on. Like a parade. One leads, one follows, in perfect sequence.

Now imagine what the the Labour Plan would look like if the WBS was based on floors instead of Typical Tasks. You might be looking at a Labour Plan with 250 line items instead of 5!

The Workflow Explained - Estimate Breakdown

The Estimate Breakdown can be fairly straight forward and processed in one day, or it can be full of holes and take weeks to sort through. Ask early. Your Estimator should be able to give you a Breakdown immediately. Take your time analyzing it, and watch for two things:

  1. Does the Breakdown match your company’s Standard Cost Codes?
  2. Is the Breakdown complete? That is, are there any “plug” numbers?

Matching an Estimate Breakdown to your company’s Standard Cost Codes is like playing the matching game. The game is easy, right? Unless it’s lopsided. True story: an Estimator once gave me a Breakdown with 14,986 items on it, which had to be matched somehow to the company’s 233 Standard Cost Codes. Thankfully, a construction manager stepped in to help out.

Then there’s “plug” numbers, which estimators use to fill holes in the estimate. Check and replace any plug numbers with real quotes, from Vendors or Subcontractors as the case may be.

BTW, please don’t misinterpret my jabs at estimators. I love estimators. I love that they win work and that they help keep people employed. So, thank you to all the estimators out there!

The Workflow Explained - Budgets

A Budget is an expression of your plan to achieve a desired result. Use the Estimate Breakdown and the Labour Plan to create the Budget. And use one of the following five categories to organize your Budget Line Items: 

  1. Revenue
  2. Material
  3. Equipment
  4. Subcontract
  5. Labour

I like treating dollars and hours separately. So, I use one table (or spreadsheet) for each:

  1. The Money Table – for Material, Equipment, and Subcontracts, plus a single budget line item for total Labour Dollars, and  
  2. The Time Table – for Labour Hours. 

The Labour Dollars come from the Estimate. One number. The Labour Hours come from the Labour Plan. Many numbers.

The Workflow Explained - Workplace Innovation Platform

Budget Line Items in the Money Table and Labour Line Items in Time Table all feed the Workplace Innovation Platform, which is illustrated in the Workflow. The Workplace Innovation Platform is a placeholder for a Custom App.

I use a Custom App because I found that spreadsheets failed miserably when it came to Financial Forecasting. I needed a tool that helped me relate data from multiple sources like base budgets, changes, commitments, costs to date, progress to date, and more. I mean, so far in this post we’ve identified two sources of data: the Money Table and the Time Table. If you’ve already managed a few projects, you know that data comes from more than just two sources. And you need all of them to achieve your goal. Remember, the goal is Financial Forecasting.

Sidebar on the Custom App

When we set out to create a custom app to help us with Financial Forecasting, we  identified 20 sources of data, which are listed here in alphabetical order:

  1. Base Contracts
  2. Budget Line Items
  3. Change Notices
  4. Change Orders
  5. Costs to Date
  6. Dashboard
  7. Default Cost Codes
  8. Forecast Cost Items
  9. Forecast Labour Items
  10. Forecasts
  11. Labour Plan Codes — referred to earlier as a “Time Table”
  12. Labour Plan Line Items
  13. Labour to Date
  14. Project Cost Codes — referred to earlier as a “Money Table”
  15. Projects
  16. Purchase Line Items
  17. Purchase Orders
  18. Revenue to Date
  19. System
  20. User Log

Generally speaking, spreadsheets are fine, even if you have multiple tables, as long as they’re not related. But 20 tables that are related? No way. Relating data from different tables is what relational databases and Custom Apps do best.

So, for you relational database geeks out there, here’s a screenshot of the Custom App — under the hood.

Finalizing the Base Budget

For now, all we need are two tables and their respective fields to finalize the Base Budget, and complete the setup

Project Cost Codes — Money Table:
  1. Cost Code
  2. Description
  3. Base Budget ($)
Labour Plan Codes — Time Table:
  1. Labour Code
  2. Description of Work
  3. Planned Hours
  4. Planned Units
  5. Unit of Measure (UOM)

We’ll revisit these tables next time, when we prepare our first Forecast. The Forecasting Setup Workflow is concluded.

Pop Quiz

Heating and Chilled Water pipes are shown running down a corridor. Do you:
A. Create a Labour Code for each task?
B. Create a Labour Code for each system?
C. Create a Labour Code for the corridor?
D. Other?

A. Create a Labour Code for each task. In this case, one for the trapeze hangers and one for the pipe. Why? Because that’s how a Fitter would install it. They wouldn’t install one pair of pipes, then go back to install the other pair. So, the answer is not B. C is better than B but not much.

A good Fitter would identify and group the operations. In this case, they would install the trapeze hangers first. Then the pipe.

A good Foreperson would identify and group the operations the same way. In this case, they would create two Labour Codes. One for the trapeze hangers. One for the pipe.

Lessons Learned (8)

  1. ‘S’ is for Structure – I lead an engineering workshop for grade 3 students at a local elementary school. Once a year, we build towers using marshmallows and toothpicks. Tallest tower wins a prize. The real goal is to learn about structures. I introduce them to the many types: load-bearing, biological, chemical, mathematical, musical, social, data, etc. The one thing all structures have in common is a pattern. The “S” in Work Breakdown Structure reminds us  to look for a pattern in our work, and capitalize on it.
  2. Patterns in Materials – Look for the same material or assemblies in various locations. They may reveal patterns in workflow, which makes them good candidates for labour codes.
  3. Patterns in Tools – Tools, scissor lifts, and hoisting are also good candidates. Use them to define more Labour Codes, Especially for tasks that require expensive machinery rentals. Might help control rental costs.
  4. Patterns in Crews – If you can visualize a specific crew performing a specific task more than once, that’s a pattern, and hence should be assigned a Labour Code.
  5. Typical Tasks and Time Sheets – Less Labour Codes means less time filling in time sheets. Typical Tasks can potentially eliminate hundreds of Labour Codes, which makes filling in time sheets easier. Makes the data more reliable too.
  6. The Real World – Labour Codes should reflect reality or, more accurately, they should set the intention for reality. (Remember, think like a Fitter. Think like a Tradesperson.)
  7. Matching Game – Companies are  encouraged to match Estimate Breakdowns to their Standard Cost Codes, so that project managers don’t have to.
  8. Eye on the Prize – Project managers are ultimately responsible for the profitability of their projects. I created a custom app for mine because I recognized the need and because I had the autonomy and the desire to do so.

Next Steps

The Workflow continues next time in Part 2: Forecasting Work in Progress. We’ll learn how tracking a project’s work in progress is a good way to calculate variance, which is a measure of the unexpected. It’s also what makes a river ride fun!

Stay tuned.

Barron Canyon, Algonquin Park

This post is part of a series aimed at designing excellent workflows for the Construction Industry.

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Leo Di Croce

Can read a psychrometric chart and a job cost report. 1 part Engineer, 1 part project manager, 2 parts geek, and 3 parts back-country tourist. Too many parts?