The three are related that unless there is a change in an outside dimension, any change in one will affect one or both of the other. In order to maximize the value of the project, two major actions need to take place. First, the project stakeholders need to fully understand the priority of each face of the triple constraint. Second, an outside dimension must be added to test the current value. Without the second action, the best goal is status quo.
Understanding Priorities
Before a project begins, it is important to get beyond the feeling that all three of the constraints (time, money and quality) are important. Since each project is unique, drivers must be identified to determine which constraints are a higher priority than the others. For example, is the completion date immovable? Perhaps the buyer has a contract on their existing home with an existing closing date. On the other hand, the buyer may not be as critical of the deadline. It is important to note that this is an exercise in priority setting. Each constraint has a cost whether it is a priority or not. If time is not important to the buyer, it still is to the builder because of the interest carry on the work in progress and the opportunity cost of not beginning another project.
In regards to cost, is the budget fixed? In some cost plus contracts, quality is far more important than budget. In this case, the priority shifts away from cost and more toward quality.
Sometimes quality needs further definition. The builder may see quality as meeting all the spec’s and the scope of work. But are there unnecessary specifications that can be removed to reduce cost or time? Have spec’s crept into the project that the buyer is unaware of? These may establish room to reduce cost.
Once these and other probing questions are answered, there is a clearer picture as to the priority. Only then is the purchasing team prepared to set goals for maximum value accurately.
Testing Maximum Value
Armed with these priorities and a refined set of scopes and spec’s. the purchasing team must assess outside suppliers or vendors to ascertain that the builder has the best value and that transitioning from an existing vendor to a new one provides enough additional value to offset any switching costs. By following a systematic approach to bidding the work and evaluating the vendors, builders can expect far more reliable results. Reducing the risks of the new vendor inherently reduces the switching cost.
During the Phase Sourcing of the procurement process, the purchasing team focuses on three key areas, price, performance, and liquidity. By drilling into each of these areas, builders can be assured their new vendor is up to the challenge of their project.
Price is the dimension that most often receives the focus. But with a clear understanding of the triple constraint priorities for the project, the purchasing team can balance their efforts. Regardless of priority, the goal is to establish a bid that allows the vendor to make a profit and saves the builder money. Pricing is established according to a cost breakdown specifically set up for one scope of work. In this manner, all bids are received with the same parameters. By doing this work on the front end, precious time is saved after the bids are received getting to apples to apples.
Performance is perhaps the greatest overall factor in vendor selection. Custom home buyers don’t remember the additional cost or additional days of construction five years later. But inferior work is never forgotten. In addition, the vendor’s ability to master the builder’s unique requirements quickly is an important consideration in the decision process. To measure vendor performance, two different metrics are used. New vendors are required to submit references of work in progress and completed work. Clients are contacted and interviewed regarding specific key measures of performance. Vendors that have worked with NEMAsource in the past are benchmarked after each job they perform. This a running performance rating is maintained for each key measure. Finally, whenever possible, field visits and plant visits are arranged to assess the work itself and the vendors operations.
During the plant visit, NEMAsource meets with the vendor to measure their financial ability to accomplish the builders project. Considerations such as credit lines available, creditor references, number of crews, percent of capacity and work in progress are all considered.
By following this approach, builders can trust that when it comes time for them to make the decision to reduce cost by changing vendors, every effort has been made to reduce switching cost. The result is a projects with maximized value for all stakeholders. If you are interested in enhancing the value of your next project, contact NEMAsource today at 704-519-9841.
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