When the budget really matters: A church restoration with lottery funding

When Ian Cribbes, took over the project management of the St Edburg’s church conservation work in Bicester he had not quite realized how different it would be from the projects and programmes he had managed for over 30 years for BAE Systems.    The project had a £205,500 budget – somewhat smaller than the multi-million-pound projects he had been involved in his professional career.  This budget came in two phases; phase 1 was for £19,500 and was allocated for the carrying out of development work (the production of plans and reports); phase 2 was for £186,000 and was allocated to the actual works to be carried out.  But, as he is the first to admit, this project proves the point that being small does not necessarily make it simple.  Sometimes tight constraints demand higher levels of capability and attention to detail from the project manager.

The St Edburg’s work was a conservation project to restore its Grade 1 listed building, parts of which date back 900 years and was funded by the Heritage Lottery.  (In the UK work on a Grade 1 Listed Building is categorized as ‘conservation work’ when its purpose is to retain what is there for future generations.  Renovation and restoration, on the other hand, is when work is carried out to take things back to what they were.)

Ian is an experienced project manager and knew he had things to learn as the construction domain, and in particular heritage conservation, was new to him.  What he hadn’t foreseen was how the difference in the funding and the stipulated budgetary control processes would affect the planning and every aspect of the execution of the project.  The budget constraint was absolute – it was this amount and not a penny more!  While the control of spending on commercial projects is important, with most, especially larger, budgets there are usually opportunities for virement – moving costs between account categories.  It is also often the case that there isn’t an absolute cost: when push comes to shove – more money can be found.  This was very much not the case on this project.

The Heritage Lottery Funding tender process is tightly controlled – and whether you are bidding for £100,000 or £5 million, the process is the same.  A detailed cash flow projection for the project has to be produced, and there are specific criteria as to who can be involved in the budgetary process.  For example, the chosen architect must be on the UK conservation register.   Where the amounts come from must be documented, and must ‘make sense’ which often gives rise to quite a bit of complicated financially modelling.  As is common practice amongst architects, this project’s architect’s fees were based on a percentage of the final build price.  When forecasting within such tightly constrained budget, considerations such as “Should you calculate the architect’s fees before or after contingency is added to the tender price?”, can make the difference between a successful bid and project failure.

Ian and his team went out to tender for the conservation work knowing what their maximum spend could be.  The architect managed the tricky business of advising the construction groups of the target figure without actually giving it away.  Even given that hint, some of the responses came in at over £400,000 – over double the likely funding from the Heritage Lottery Fund.  There is so much demand for heritage construction in the UK that companies can afford to pick and choose their work.  This often means that smaller pieces of conservation work such as St Edburg’s can struggle to find the right resources.

The big budget items for the project were: the constructions fees; the architect’s fees, and contingency or management reserve.

  • Contingency refers to the identified risks associated with the work to be carried out – the known unknowns
  • Management reserve is used to manage unknown risks – the unknown unknowns.

The level of contingency set aside should vary task by task and can be calculated as it reflects the risk exposure each task exposes the project’s objective to, or putting it another way, accounting for the level of uncertainty associated with specific work packages.   Setting the management reserve is not a science – it’s about coping with the unexpected, so it’s typically just a percentage of the cost, often set by industry standards and standard practices.

On small budget projects such as St Edburg’s these two risk management set-asides are often combined into the one figure – in this case, it was set at 10% of total fees.     There are some technical issues with this approach.  For example, contingency is usually managed at the work package level.  Once a work package is completed any remaining funds should be released– sometimes transferred to the management reserve, sometimes just removed from the budget.  This allows for greater accuracy in the monitoring of costs and cost risk.   And there is another problem.   Without proper evaluation of the known risk factors, how can you know that 10% be enough?

Ian and his team knew that getting the budget though Heritage Lottery Funding process was going to be difficult.  The supplier who they had chosen was right at the top of their price range, and if most of the risk money were used, it would likely exceed it.  The request for funding would not be approved if it was even a penny over the target figure.   This meant engaging with all the funding and resource groups to come up with an agreed approach:

  • Contingency would not be included by the construction group in their bid – this would reduce their total fees, and the architect’s fees.
  • A management reserve would be found from church funding – this had to be agreed with the Heritage Lottery Funding group, who would normally expect the church to use its funds before getting any lottery funding.
  • A staged commitment to work was drawn up with the contractor based on a revised scope. The initial tender had been for three work packages: replacing and repairing damaged stone on the tower; repairs to the north porch; and renewing the drainage.  It was decided to defer the last work package to another project.  It was further agreed that the work on the north porch would only be started once it was clear that sufficient funds remained.

This last point was significant.  Grant money is released in three stages with 50% up front, and 40% when you have completed the first half, and a final 10% when all the work has been completed.  As Ian commented, “It is very unwise to dismantle anything without being sure that the funds are available for completion, as there is no guarantee that follow-up funding will be made available.”  Also, there was a commitment to the church community that the church would be accessible throughout the work.  These constraints impact upon the way the work is planned, sequenced and carried out – sometimes resulting in sub-optimal solutions from a cost perspective.

Once funding was approved, Ian’s role moved from planning to one of monitoring, control, and issue resolution.  “We unearthed problem on a weekly, sometimes daily, basis and each issue needed to be considered and a decision made quickly.  I soon came to realize that the heritage workers were perfectionists – they wanted the job done right.  My role was to mediate that enthusiasm for a job well done against the difficult problem of a severely limited budget.  Every decision made had to take into account what impact it would have on the costs, and hence the scope we would ultimately be able to deliver.  And, of course, how truly viable and sustainable the alternative ‘cheaper’ solutions were.”

Ian needed up-to-the-minute information on the current and projected spend at all times.  He did create cash flow projections monthly, but this was hampered by the slowness of invoicing by some suppliers – something, in the end, he just ruled as unacceptable – “…either raise your invoices on time or don’t get paid!”.  Every increase in potential final price had to also include the impact of fees for the architect – a double hit!

The St Edberg conservation project was a success.  The revised scope was delivered, the costs were slightly over budget, but within the management reserve Ian had set up from the church funds.  The team was even able to celebrate by setting aside an additional amount for the re-gilding of the church weathervane!.

Reflections on the project – planning in a cost-constrained environment

St Edberg’s is a classic example of a cost-constrained project.  The impacts on the way you plan are manifold.  In particular, the planning process has to be highly iterative.

It starts with establishing the hierarchy of constraints.  In this project, the cost is number one, followed by the others: the timing is affected by the cost; the need for minimal disruption and access to the building and the quality criteria modifies the approach and then the cost and timescales. You can see the idea.  You then identify the outputs or products the project has to produce to deliver the objective.  Some products come with pre-set material costs, and these have to be factored into the budget.  Should the material costs leave insufficient funds – the outputs have to be changed – as was the case here, when the drainage work package was removed.

Next, you look at the processes (tasks) necessary to create the outputs.  Some processes are more expensive than others, due to the tasks and skills involved, or to contractor differentials – and choices have to be made.  Of course, there are standards to be maintained – the quality or acceptance criteria set by the various stakeholders, but these are negotiable, and the budget is not: perfection may need to be traded for ‘good enough’.  If there are no acceptable processes (i.e., no processes that can be afforded to create the product) then the output will have to be changed – that’s why there is a need for tight iteration in the planning process.

Once you have the candidate processes identified, it is now possible to specify the necessary resources, and if they are not available at an acceptable cost that may cause changes to the agreed processes, which may cause changes to the outputs.  See, it is tricky!

Sometimes opportunities for cost reduction arise which need to be considered quickly and factored into the approach.   In one example, the contractors approached Ian to say that if they could stay on-site and complete some work in parallel to the current ongoing works they would be able to do it faster, and as the resources were readily available – cheaper.  This proposal broke some of the rules about access to the building but Ian worked with the stakeholders- the church – to ensure he could exploit this opportunity.

Every decision made, as you step from product to process to the resource, generates risks and these need to be factored into the planning – and the cost.  In this case, partly because the tasks were well known, partly because the management overhead would itself become a cost issue, the risk exposure was ‘bundled’ as described earlier.

Finally, and not until then, it is possible to set the schedule – and deal with the risks that that creates.  In this case, pressure from the contractors, the need to keep reasonable access to the church, and a determination not to overcommit, all led to a level of sub-optimization to the sequencing and hence to the cost.

There is one other impact on the plan caused by the absolute cost constraint, and that is the plan had to be easy – and in this case that meant cheap – to monitor.  Without close monitoring, a way of comparing what was planned to what was delivered, and at what cost, the planning has little value, and the manager of the project would be able to do little more than to watch as the project costs spiralled out of control.

St Edburg’s project is a perfect example of planning and executing a project when cost is at the top of the hierarchy of constraints.  Other projects, where the top constraint is different: say end-date, or stakeholder-determined outputs, must be planned differently.  It may not be true that all projects are different, but it is certainly true that not all projects are planned the same way.

Adaptive planning: Changing the way you plan projects

Louise Worsley is currently researching for a book on Adaptive Planning – changing the way we plan depending upon the nature of the constraints the project must work within.

Many, many thanks to Ian Cribbes for sharing his story and helping me explore the consequences of managing this type of project.

If you would like to share your experience in planning in a challenging environment, please do contact me:

 

 

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