Stop guessing and start valuing

Stop guessing and start valuing

The nature of construction, where we design and build unique built assets, means assumptions are unavoidable and form a part of what we do every day. Whatever we do and just about at every stage, we need to make assumptions in the scope, programme and valuation work that we do; we don’t have the luxury of waiting for perfect information.

However, assumptions inevitably carry risk. If nobody knows what the assumption is, or it is not clear, then how can it be measured against and managed? The solution to this is making your underlying assumptions visible and transparent because a robust valuation sets out:

• What assumption has been made (e.g. reinforcement weight per m³ of concrete)?
• Why it is reasonable (e.g. benchmarked against typical industry data).
• How it can be updated if further information emerges.

If you do this, you turn assumptions into a strength. They become a baseline against which change can be managed, and when they are replaced by actual information, you can give an auditable explanation as to why your valuation has changed.

When to use assumptions?

An assumption, in the context of construction valuation work, is a professional judgement. You use the information in your possession and couple this with your professional knowledge to make an assumption about how long something might take or what it will cost.

The most obvious point in time at which assumptions are made is at the tender or estimate stage. You receive a tender design pack and need to take the risk on the quantities required to complete the design and comply with the contract requirements. You might do this with perfect science because you know from experience exactly what is needed, or you may have to take a punt and make an educated guess.

The need to make assumptions arises at every stage of a construction project.

Production Rates: The Critical Gap

Of all the assumptions made in valuation work, production rates are probably the most unknown and therefore the most vulnerable.

• How long will it take to drill anchors?
• How many operatives are needed for a lift installation?
• What is the realistic cycle time for a repetitive activity (number of operatives and duration)?
• What access and/or equipment do they require to achieve the optimum rate of production?

These questions are not just operational details. The production rates determine programme durations which, in turn, determine labour costs, plant requirements, preliminaries, site running costs, etc. If the production rates are unknown, then how do you expect to control cost?

And yet, production rates are often guessed, left unchallenged, or pulled from outdated schedules.

Filling the Gap

How can QSs strengthen their approach to production rates?

Work with planners and engineers. Planners understand cycle times. Engineers understand methodologies. Their inputs provide information that is invaluable to your valuation.

Use benchmark data. Publications like SPON’s or trade productivity studies provide a baseline. They may not reflect site-specific factors perfectly, but they can help anchor your valuation.

Test assumptions against real examples. If similar work has been performed on the project (or a past project), compare assumptions against actual performance.

Document the rationale. If challenged, being able to show why you assumed four hours per cycle rather than two can make the difference.

Everyday QS Application

Even if you are not preparing an expert report, there are lessons that you can apply to your day-to-day QS work:

• Variations: State the design assumptions used in your pricing. If drawings develop, then you can easily update your valuation and justify the price increase. This can make all the difference when you are trying to agree a price, especially when it comes to maintaining credibility.
• Financial reporting: You don’t need the cost ledger to tell you what you have spent and whether you are ahead or behind budget. If you are measuring production, then you will know the answer to this question well before it is asked. Better still, you can influence and improve it!
• Payment applications: You will know what you need as a percentage to cover your expenditure. If the percentage comes under scrutiny, then you have evidence to hand to support your claims.
• Final accounts: Transparency in assumptions reduces the risk of drawn-out disputes.

The underlying message here is to bring all your assumptions to the surface and communicate them. Be ready to own them, explain them and update them as the project progresses.

Final Reflections

Assumptions and production rates are key ingredients when valuing construction work. If they are used effectively, they will provide flexibility and structure at the same time. If they are not managed effectively, then they can result in cost blowouts, under-recovery of revenue and disputes.

For QSs, the discipline is simple:

• Make assumptions visible.
• Collaborate with other team members to plug gaps.
• Benchmark with other data sources.
• Communicate your assumptions with relevant stakeholders

Next week: we’ll wrap up this mini-series with a look at practical takeaways for everyday QS valuations, translating expert-level lessons into daily project controls.

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