Cost Estimating - Make or Buy?

Troy Montgomery
Muma Case Review  •  Volume 2  •  2017  •  pp. 1-24
Determining how a corporate real estate organization estimates its project costs is a big decision that impacts budgets, customers, and the bottom line. Our next management meeting is only a few days away. What recommendations should we make for improvement of cost estimating?

Troy Montgomery, a consultant at Humana in April of 2015, was tasked with providing leaders of Humana’s corporate real estate group, Workplace Solutions (WPS), with an answer to how to provide early cost estimates on large construction projects. Should they create a solution internally, outsource development of a solution, or look to an existing solution to provide a “cost calculator”? There was so much variation in the types of projects WPS worked on, not to mention an assortment of internal clients they served. Such complexity made it virtually impossible to come to a straight forward recommendation.
Humana was a leading health and well-being company focused on making it easy for people to achieve their best health with clinical excellence through coordinated care. When Humana needed a new or renovated office building, call center, pharmacy, or medical center they engaged the WPS team to manage the start to finish solution. Similar to any other large project, the end user was concerned with three things: time, cost, and quality. The initial questions from WPS internal clients were typically “How long is this project going to take and how much will it cost?” WPS managers believed they provided sufficient cost estimates once all of the planning activities were completed, contracts selected, and construction drawings finalized. However, they were curious if could provide better estimates at the initial onset of a new project, before all of the planning is complete.
In late 2014 and early 2015 Montgomery led a small, cross-functional team of WPS associates through process improvement initiatives. The team had only been commissioned for six months and due to their success, WPS leaders challenged the team to identify additional improvement opportunities. Determining a solution to an issue like cost estimating would not only build the credibility of Montgomery’s team, but it would also open up new opportunities for additional improvements in the future.
First, the team identified the current methodology for cost estimating within WPS. In parallel they researched cost estimating tools on the market and investigated best practices within the industry. Based on the team’s analysis, WPS leaders recognized they needed a solution in a short period of time. Should they task internal resources, purchase an out-of-the-box IT tool, or commission an external vendor to create a solution?
Project Management, Cost Estimating, Healthcare
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