Why All of Your Technology Budgets Are Wrong (And How to Fix Them)

by Nate Larmore, CCNP, ICNC, MCSE, LPI

This article is part of Wood Harbinger’s newsletter series.

An unreliable budget will sink a project before it has even started. Board approvals, funding mechanisms, design schedules, and construction planning all assume the project budget is complete and accurately derived. Many budgets are built from assumptions based upon dollars per square foot ($/SF). Because most major building systems are governed by codes and regulations, each system usually consists of the same design architecture and components. So long as factors for facilities in vertical markets such as healthcare, commercial real estate, retail, higher education, government, and so on have been addressed, a boilerplate $/SF metric can provide a reliable budget.

The Technology Curve Ball

Building technologies, on the other hand, are not necessarily code-driven or completely standards-based. While organizations like BICSI have successfully created design guidelines for particular systems within certain types of facilities, these guidelines are generally limited to telecom infrastructure and do not address the dozens of other building technologies found in most projects, including data networks, audiovisual systems, security, location services, and specialty systems, among others.

Additionally, design guidelines provide requirements for how infrastructure must be engineered, but that is not a meaningful measure of how densely a project will deploy these technologies. For example, the density with which a medical office building will implement communication technologies will be significantly different from the density required for a commercial office tower. Or, the audiovisual budget of an upcoming educational complex will vary greatly from a retail development project.

Coming Up Short

In a recent hospital project here on the West Coast, planners secured budget approval for a large upcoming project that included a hefty technology systems scope of work. The basis for the technology budget was installed costs from their three most recent major campus projects. They averaged the final costs of a cardiovascular expansion, health education center, and outpatient pavilion, and then applied their standard escalation metrics. Using this method, they felt a variety of regional and programmatic factors had been addressed leaving them with a reliable budget for their upcoming inpatient tower.

The fatal flaw in their assumptions was the dramatic variance in program types between each facility and the absence of owner equipment and software costs in their budget calculus. As a result, the design team spent a sizable chunk of their schematic design and design development fees trying to “value engineer” the project into alignment with a budget that was incorrect to begin with. This cascaded into change orders from the design team, design schedule impacts as deliverables could not be completed on time, transfers from a contingency budget, increases to the owner’s equipment budget, and a drop in functional performance of the completed project.

Without All Things Considered

Many customers who are not regularly building new facilities face even greater challenges. Commercial clients have routinely applied a percentage markup to their standard electrical $/SF, expecting this will adequately cover their technology budget. Even when this approach occasionally lines up with the costs of telecom infrastructure, it doesn’t even come close when considering costs for data networks, audiovisual systems, wireless networks, mission-critical components, electronic security, and market-specific specialty systems. And since these systems are must-haves, rather than nice-to-haves, the long walk back to boardroom to acquire more funds is a particularly bitter journey.

A Different Approach

So what can be done? The beginning of the answer is in your understanding of and approach to the true nature of technology:

  1. Technology Design is Not Electrical Engineering

Do not treat the technology scopes of your project as specialty subsystems to electrical—technology has as much in common with your electrical system as it does with your food services design. Assume from the start that the technology scope of work requires specialized perspective and expertise.

  1. Get a Technology Program Developer

A technology program development partner can bring that specialized perspective and advise you on what systems you are likely to have in your project. A good technology program developer (TPD) will not drone on with stories about the challenges of cabling, cable tray, and the evolution of fiber-to-the-desk. A savvy TPD will investigate the programmatic intent of your project, functional expectations, and architectural considerations such as gross square footage and departmental square footage. A true TPD will be experienced in far more than management/oversight of design and construction. A TPD’s know-how spans construction systems and owner equipment.

The TPD will draw from your project understanding, apply real-world experience regarding applicable systems, and hand you a reasonable forecast of your technology scope of work, along with an itemized model of construction and equipment costs. The model will employ a variety of budget build-up techniques depending on the specific line item. Many costs can be measured by deriving unit quantities from gross square footage and departmental square footage. These unit quantities will be tied to your project specific program, will become the basis for your initial budget, and can be tracked throughout the design phases. Other system costs can be built up from the assumptions contained in the space program you’ve already created.

  1. Read Between the (Cost) Lines

As we’ve discussed in our examples, “above-the-line” (construction) costs are already difficult to properly calculate. Tack on the oft-overlooked “below-the-line” (equipment) costs and you’re in for another layer of woe. You’re probably thinking, “The IT equipment is the CIO’s problem, not mine.” However, ignoring below-the-line costs will inevitably torpedo your project at the worst possible time: construction documents. Suddenly the new phone system that no one thought of or the additional million dollars of data network equipment will be slid into your project. The audiovisual equipment assumed to be OFOI (owner-furnished, owner-installed) will eat away your contingency. The additional software licenses required to turn up your new facilities video management system or expanded electronic medical record will wiggle their way into your budget. The expiring outsourced IT contract will suddenly become your problem as new servers (and additional space to house them) are suddenly required on premise. It may sound far-fetched, but don’t sneer too quickly. Each of these examples comes from actual projects here in the USA.

  1. People Are More Important Than the Firm

Another important factor is ensuring you get the right people for your project, not necessarily the right firm. Personnel turnover has plagued the A/E/C industry since the recession. This has left many firms with strong project resumes and marketing material, but the people who actually delivered those projects are long gone. As you search for consultants, make sure you are vetting the actual people who will work your project. Be sure to understand the exact services delivered by each proposed team member. Delivering an opinion of probable cost (I’ve always loved the double-CYA of that term!), engineering a project, or simply updating a Guaranteed Maximum Price (GMP) are not the same as guiding you toward a reliable budget. In fact, most firms performing the services outlined above are passive and tactical in their cost analysis; you’re looking for proactive consultation who brings real strategic insight.

When investigating a firm’s project resume, make sure you know the names of the people who did the real project work and if they will be working directly for you. Principal-in-Charge (PIC) is not good enough. PICs typically perform a high-level oversight function, but are rarely involved in the details. And when it comes to budgeting, the devil is in the details.

What Does Success Look Like?

One of our teams spent a good portion of 2015 supporting a demanding design-build project. The client considered an integrated technology platform a priority, but viewed management of cost a potential risk. The TPD team spent the bulk of the first month familiarizing themselves with the project program, through meetings with stakeholders and analyzing available project documents and data. Our key discoveries included significant gaps in the basis of design, ambiguity around the definition of “integrated technology,” underestimation of IT costs for the project, and overreliance on presumed benefits from several emerging technologies.

Our team was able to classify 95% of the total technology scope into a manageable and predictable cost model by systematically addressing each of these issues, through program development with stakeholders, detailed capability analysis of each anticipated system, and development of a true, cost-based budget. We also created a standard to incorporate pricing metrics into BIM. By incorporating “price-able” qualities into BIM objects, we tied the ability to track cost directly into the design development process.

The remaining 5% focused on emerging technologies that could benefit the project, but would need to significantly mature prior to procurement. If these systems did indeed mature to a point where their inclusion would provide value to the client, the tracking plan would provide actionable cost and performance metrics to decision makers. If these innovations did not mature or did not adequately shift from “bleeding edge” to leading edge, the base design would include contingency features to fill the gap. In either scenario, the project was able to accurately predict and knowledgeably manage the technology program. Furthermore, several emerging technologies were intelligently incorporated into project planning so they could be tracked and procured in a manner that was most comfortable for the client.

On the Right Path

Success is not defined by glowing headlines or sexy innovations. Success is defined by identifying performance expectations, budgeting realistically, eliminating ambiguity, and prepping a platform to safely include potential innovations. Success for our TPD team meant helping the client to clearly understand the desired outcomes of the project, build a budget that could deliver that result, and work with the project team to assure that selected systems and feature-sets were consistent with stakeholders’ expectations. By getting the real picture about the multifaceted nature of building technologies, you can achieve successful project outcomes without having to shuffle back to the boardroom, hat-in-hand!

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