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Managing feed and grain project risks, costs [PODCAST]

Practical tips on ensuring companies get the most out of facility investments.

Steven Kilger 2 Headshot
Podcast Via Pixabay August 2022

The Feed & Grain podcast is hosted by Steven Kilger, the managing editor of Feed & Grain. In a recent episode, Kilger interviewed Greg Franzen, Agri-Food Sector lead at  Faithful+Gould, and Mark Herbert, Project Controls manager at the same firm. 

The guests discussed how grain handlers and feed manufacturers should protect themselves and get the most value for their money when starting a new construction project. The discussion touched on what to prepare for and keep track of during a construction project, including a risk log to document potential risks and their impact on the project. The speakers advised that keeping the risk log simple and involving the entire team is important, but the impact of all risks on the project should not be overlooked.


Kilger 0:46
But before we do that, I've got a bit of housekeeping. If you're listening to this podcast within podcast app, please consider subscribing. If you have an idea for a topic you would like me to cover, or someone in the animal feed/grain handling or related industries that you think would be a great guest, let me know, this podcast page on has a button right under the title that will let you send me an email directly where you can share your ideas. And I really hope to hear from you soon. I'd really love to hear everyone's ideas. Right on your talk with Greg and Mark.

Kilger 1:18
You mentioned earlier about part of your project charter was to go through and have an idea a general kind of idea of what risks might come up during the project, what things might happen, and then putting some kind of price out those are ability to move within your budget to address them. Right. So what are some of the items to consider when you're you're brainstorming the the cost of a given risks and those risks overall?

Greg Franzen 1:45
You know, all the planning in the world and great design and engineering and in planning can go a long ways to eliminate many risks. However, we do not live in a perfect world. And everyone knows that. And so it's important to typically most most clients will recognize those risks and create a contingency line item, budget line item in their overall budget. So that there's funding available to cover costs risks. However, some of the cost thrusts may be known when you're going into the project. But some are not.

Franzen 2:28
And so the idea behind managing cost risk is to work with the engineer work with the contractor and develop a risk log. What is it that's out there that potentially is at risk? Is there a cost escalation and certain pieces of equipment because it wasn't ordered on time is that you know, flooding is kind of a big subject this time of year. And in some parts of the central US with the river rising and all of that and how that might affect project or so there's all sorts of things like that. And so it's a matter of just capturing them, documenting them, putting them in a simple spreadsheet and calling them what they are and what the rest of the project is or scheduled delay is a cost issue. And then what what might that cost is $100,000 a million dollars. And then you know, what's the likelihood or probability of that happening. And so you can make it as complicated as you want. But seems to me that it's best to keep it simple.

Franzen 3:35
But what's more important is to work with the entire team, because don't do it in isolation, because he was a client, you're not aware of everything. And so involving the engineer involving the architect involving the contractor, and meeting regularly to address these items. And then using that risk log to help inform how you're going to spend, you may spend part of your construction contingency. And so it all sort of works together. And so by doing that, you're taking a proactive, you're being proactive you're trying to come to you always want to as a as a project manager or class manager, you always want to be able to forecast what the whole project is going to cost at completion. And so the cluster of squads will help you do that, because it'll help give you visibility to what you maybe can't see all on your own.

Mark Herbert 4:34
Yeah, Greg made a very good point. Don't overthink it. You can go into some pretty deep weeds with this stuff on probability. But keep it simple cater to the audience. I mean, the key there, like Greg said, is you're not an island. So if the entire group is satisfied with the approach, and that's the approach, don't overthink it. One thing that needs to be considered though is the sum total of these risks. You look at a few and you treat them, have a bee sting and everything's fine. But when you step back and look at all of them all sudden, there's 1,000 bee stings.

Herbert 5:07
So you got to think maybe this project shouldn't move forward because of this, or we approach it from a different direction, a different product, something to that effect. So don't forget the big picture. And accounting for risk, because the risk exercise is important and going through each one. But then a lot of times what we miss is the idea of what is the impact of all of this, not just one or two and chasing them here and there, but taking it as a whole and how we consider that.

Franzen 5:36
Like, I think the other thing to keep in mind is that executives and board members, they no one likes surprises, finding out their if their project is going to be over budget. And so keeping track of risks are is a way to keep the team, all project stakeholders informed about what could potentially come up. And no one likes to pay more than they have to for a project. But what they like less than that is to be surprised by a cost overrun. If people are informed all the way along the path of the project. People can address it and deal with it in a proactive way instead of being surprised.

Franzen 6:20
And so the risk squad really can help with that. I mean, imagine what well, we all know what happened, we all have our experience with what happened with project costs during the pandemic. And during the subsequent cost escalation, hockey stick that kind of followed. A lot of projects went way over budget, because of the cost escalation. And so it's important to stay on top of it until, you know, who knows how right now, I think we're running five to 7%. And construction cost escalation. And where's that going? What are the trends is there what do we think is going to happen? And so that all?

Kilger 7:04
Yeah, it's that old saying hope for the best plan for the worst. It's better to know and not be surprised. And that's really what a lot of the project charter and things are right. It's about documenting and all these things come down to the same thing, which is mitigating the chance of a big surprise coming and derailing the entire project. At least that's what it means to me. What advice do you have for clients and contractors on effectively managing project costs throughout the lifestyle? Because as we know, things can get out of whack pretty quick.

Franzen 7:45
So effectively managing costs, Well, Michael, maybe let you jump in and take this one. But obviously, the first step is to have a good budget that's based on good solid information. And so sometimes what clients do is that they'll they'll go up to contractors and get and get pricing get get bids, and they'll assemble it and then I'll just add X percent for a contingency well, maybe that's one way to do it.

Franzen 8:27
But if it's whatever, we're, of course, we're consultants. So we're, we're big believers and having an independent third party, at least do a cost estimate validation of what of what the client has pulled together for a budget. Just because, you know, so early on, if you're having contractors do budget pricing, that may be accurate, but there may be some gaps into it. So that's why having that independent third party do a cost estimate validation will give the client confidence that hey, it's you know, we've had this contractor provide an estimate or we got this, we did this estimate in house, having a third party, validate it look for holes gaps.

Franzen 9:19
So starting out with a proper budget is step number one to managing managing costs, you want to make sure that your that your foundation is solid. And then you know, as we talked about a few minutes ago with managing cost risks, just staying on top of the potential change order items and risks and addressing them, addressing them in a timely fashion so that the contractors able to keep going and there are there are delays. So just good project. Good. Having a good project routine is a good way to start. 

Herbert 10:19
Yeah, and we, a lot of times also, the budget is, is a foundation. And so I see a lot of clients, they'll get pressured unfortunately and or I'll get pressured or someone else who's planning this will get pressured to lower prices. Upper management obviously doesn't want to spend money if they don't have to. And so unfortunately, we see sometimes the call down says, make it x percentage less or make this less cost or, you know, why is it so expensive? What and so that unfortunately, what happens is we start driving down prices, when we don't fully know why it's just because someone's request isn't. And that's a, that's a delicate situation, because you have to walk through the politics of it. And, yes, they are right, but they're also wrong, we need to be educated on what costs we're assigning, we don't get a range of estimates and just grab the lowest one, we can grab the lowest one if it's validated, and we understand why.

Herbert 11:21
So that unfortunately, I see that quite a bit. money runs out because the plan was wrong to begin with. It was based on assumptions and almost a fear, unfortunately, sometimes. So having that, that on biased approach from the get go, just as a philosophy will help guide this project to success throughout and then you know, that's the foundation and then working through it, you make a plan, you work the plan, and then you change the plan. And then you work a new plan. Because change is constant. And so you have to be able to roll with it. And a lot of times it's a whole other podcast can be dedicated to databasing structures to allow for this or we talk about hierarchies versus relational databases, and I won't get into that your audience will probably you?

Herbert 12:18
And yeah, yeah, I'm sure you probably get when we have too many people attending that one. But that idea of catering from the get go, how you're doing your documentation, how you're doing your cost management, it's a philosophy approach, so that you can infinitely expand and roll with change for the rest of your project. Because a lot of times, that's where they trip up to because people look at a system and go, this is the way we've done it. And this is the way we're gonna keep doing it. Because I don't know how to change well, we need to create the attitude being the systems need to be ready to easily accept change from the get go. So that doesn't happen.

Franzen 12:55
Well, that was I mean, that leads into a whole other subject of you know, that the whole change management process, sometimes what happens is that, you know, there'll be a corporate capital project at a processing plant, and, you know, it'll be designed and there'll be an estimate, but then pretty soon the plant has all these things that they changes they want to make, and, you know, maybe for good reason, and maybe a ton of benefit, but at the you know, what ends up happening is that the scope of the project changes, so the cost changes, the schedule may change. And so, you know, having a good change management process and is, is in good decision management, and good project management is, is really needed to keep

Kilger 13:48
Yeah, it's a really good point that all of this, everything we kind of talked about so far is really about giving people flexibility to big changes, right? Because a lot of people might say like, oh, well, you know, now that we have the project charter this is what we're gonna stick to but that's not really the idea right? The idea is like oh, we have this and we have flexibility in it so that when we find out later that you know, the Mississippi River is going to flood this year we can make those changes and those adapt it without losing everything so last question for you for today. At least I have a I have a theory you guys are going to be coming back. It's what are your most critical issues for owners and contracts to discuss before they sign a project before they sign a contract for a project?

Franzen 14:54
So we have a we have a pretty good list here. We'll talk about a few of them. You know? Well, I mean, it starts with form of contract contracts or contracts are important because they're obviously a legal document that informs the contractor and informs the client and the engineer how, what we're going to agree to and, and how it's going to be done. And so, for instance, if there's a guaranteed maximum price, GMP to a contract, you know, as, as the client, you want to make sure you have a complete understanding of, you know, the, the full build up of the GMP budget. And, again, I'm gonna just make a plug for an independent third party estimate, to validate the contractors budget to understand, you know, what are the gaps? If there are allowances built in? How are they built up? If there are contingencies? How are the contingencies to be used? Are they is the contingency the contractors to use exclusively, or is a shared use? All of those sorts of details are important, important.

Franzen 16:17
And so you know, if the contractors doing self perform work, we're they're not the contractors that for instance, let's say it's concrete. And so they won't be bidding that scope of work out. And so what, as an owner, what's your, you need to have a basis of comparison? So that's where I, I think, independent third party estimate of that contract yourself perform work is just a requirement. So you, as an owner, have a basis of comparison. And so you really understand what, what you're buying. And then one thing that Mark has been just excellent with over the years is just weighing in on cost and schedule reporting requirements. You know, as an owner, you may not think, especially if you're like an operations person that you're taking over this project, you kind of don't know what you don't know, or, I mean, it's, it's not rocket science, but no one has all the experience that not everyone has the same experience. And so the point is, is that, you know, like we talked about lessons learned earlier on. You know, you okay, I lost that we're gonna have to start over with this one. I got gone in too many different directions.

Franzen 17:58
Yeah, so So I think, understanding. Okay, I'll start this over. I'm ready 123 Go. So Mark has done a really good job with understanding cost and schedule reporting requirements. Over the years, Mark is mark as a project controls manager and deals with cost management, and schedule management. And so he he knows what's necessary to from a reporting standpoint, to understand, you know, that the relative health of the project and so one of the things that is important to include in any contract with a contractor is to spell out what are the reporting requirements that you as an owner expect, I want a, we need a critical path method schedule. On a monthly basis, we need three week look ahead on a weekly basis. So listing out all of those scheduled reports and cost reports we want to Cash Flow Report and we need the cash flow report monthly. So Mark, feel free to jump in.

Herbert 19:21
Well, a lot of the critical issues. Another big one is how is the contractor going to manage the contract? Because again, the owner, it's their money, right? So they have every right to understand what's happening with their money. So if the contractor says, yeah, we'll build it for you. I wouldn't feel comfortable with that. You know, talking with them on Hey, are you going to plan this and actually build a schedule? Are you going to use management tech, what kind of management techniques you're going to use? Is this going to be daily stand down meetings during the you know, the concrete structural processes? As. And then we switch over to sort of a last planter approach with planning boards on site for the mechanical trades that come in and overlap each other.

Herbert 20:08
And then we switch to lean and just in time techniques for arrivals and deliveries and an understanding how the management is going to be going into this. We'll set this up for success, because these are processes that just work their plans, they work plans, and then one day the project's done, and everybody's happy. But without knowing how you're going to manage this. All of a sudden, it's the go time and people stand around looking at each other going, what do we do now? You know, we're supposed to be doing things well, you know. So that's, that's critical, understanding how they're going to manage the project, not only just the project, but the different phases that the project is going to be in through its lifecycle. And another good one that a lot of people don't think of, and this is like a bonus is going to be more risk sharing.

Herbert 21:05
And this is a tough one, because in the construction industry, it's a pretty macho industry. So telling these people that, hey, we're gonna get, you know, we're going to be partners here, they don't a lot of people don't like that idea that like we want to push all the risk off on somebody else, we just don't want risk. Well, that that might not be the best approach. And so talking with these contractors, and weighing out the risks and opportunities and sharing the is actually proving in my experience to be very productive and a win win for everybody. Because if it's a lose for somebody and a win for somebody else, and the person that one is still gonna lose, because they're, they're fighting.

Kilger 21:53
They you for that bonus? No, that's, that's great advice. And those are all the questions I have. And like I said, I think we just are scratching the surface of this topic. So I really do hope you guys come back again. But for now, is there anything you think I've missed anything you want to add? Add? Also, I will also put out there, yes, people get get consultants. They get a bad rap from TV. But I've only found them to be very nice, pleasant, people who want to give you an expertise that you probably don't have just sitting around on your own payroll. So I think what you guys do is great. Any other anything else you want to tell our audience?

Franzen 22:46
I think the only thing that that comes to mind right now is that we're we happen to be working with a client right now. And they're negotiating with a contractor for for a scope of work and having for an owner to have a consultant in their corner, advising them, AI has been really helpful, and just from if nothing else, from a coaching standpoint, but we all need input, and we all need an advisor, or someone to speak into our lives to help us grow and develop as people. And so having having someone whether that's someone from, you know, the company that's there to advise and support, we're having that consultant that has has the experience is just, I think a real confidence booster to a project team to, you know, to have a have someone to go to and in a firm or provide other options, ideas for consideration. So no one likes to do do it alone, really. So we all will need support from from from others that have experience.

Kilger 24:18
All right. Well, thank you again so much for talking to me, Greg, Mark. It was a real pleasure. I hope you had a good time. And for everyone else out there listening right now. Make sure you stay safe and we'll see you next time.

Herbert 24:33
Thank you see you.

Franzen 24:36

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