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Risks of depending on ROMS
One of the earliest and most valuable pieces of information frequently utilized is a Rough Order of Magnitude (ROM) estimate. While ROMs have their purpose, it’s essential to recognize that relying on them as the sole criterion for selecting a design-build firm can lead to costly misconceptions, as well as schedule and budget overruns, potentially jeopardizing the project’s success. This understanding should encourage caution and awareness among decision-makers.
Picture this: You’re planning a holiday cruise for your family. You ask a friend who went on a similar trip two years ago how much it cost. They give you a ballpark figure, but can you truly use this as your budget? Factors like cruise line itineraries, durations at sea, time of year, stateroom views, airfare to get to the port, and beverage package options will significantly impact what you can expect to spend. Similarly, ROM estimates for capital projects provide a broad, initial glimpse of potential project costs based on limited information and historical data.
Understanding ROM Constraints:
Broad Margin of Error: ROM estimates, often classified as Class 5 in the AACE standard, can have accuracy ranges from -50% to +100%. This means that a $10 million ROM could indicate a project cost ranging anywhere from $5 million to $20 million. Such a wide range renders it an unreliable tool for final decision-making.
Lack of Project-Specific Details: Early in the project lifecycle, many crucial details remain unknown, and the program is often in flux, making it challenging to price the scope accurately. ROMs may not account for site-specific challenges, evolving client requirements, or market fluctuations, all of which can significantly impact costs.
Potential for Misalignment: Different firms may base their ROMs on varying assumptions, leading to potentially misleading direct comparisons. One firm might provide an optimistic low-end estimate, while another offers a more conservative high-end figure. Firms that are less familiar with the complexities of climate-controlled design and construction often deliver lower ROMs simply because the inexperienced don’t know what they don’t know.
Overlooking Qualitative Factors: ROM estimates often overlook crucial qualitative aspects, such as a firm's expertise, innovative capabilities, and track record of successful project delivery. Firms with a specialized focus and extensive experience in climate-controlled design and construction can save you money, as there are few challenges in the industry they haven’t encountered.
ROM-Decision Making Insights
Selecting a design-build firm based primarily on ROM estimates is akin to choosing a life-long partner based solely on their online dating profile. While it provides an initial impression, it fails to capture the relationship's depth, complexities, and potential.
- Budget Overruns: An artificially low ROM may secure a bid but can result in substantial cost overruns as the project advances and actual conditions are realized.
- Scope Compromises: When actual costs surpass the ROM, clients may have to compromise on quality or project scope to remain within budget.
- Strained Relationships: Differences between the ROM and actual costs can lead to disputes, undermining trust between the client and the design-build firm.
- Missed Opportunities: Prioritizing the lowest ROM can cause clients to overlook firms that offer innovative solutions or superior expertise, potentially providing better long-term value as a trusted partner.
Elevate Your Approach
Rather than relying solely on ROM estimates for decision-making, owners in the food and beverage industry looking to build a greenfield, expand or automate should:
- Use ROMs as Conversation Starters: View ROM estimates as an opportunity to initiate deeper discussions about project scope, potential challenges, and value-added solutions.
- Emphasize Qualitative Factors: Assess firms based on their expertise, innovative capabilities, past performance, client retention rate, and alignment with project goals.
- Request Detailed Breakdowns: As the project concept evolves, seek more detailed estimates that offer improved accuracy and insight into cost drivers.
- Consider Total Cost of Ownership: Look beyond initial construction costs to include factors such as operational efficiency, maintenance needs, and long-term durability.
- Engage in Collaborative Planning: Collaborate closely with potential firms to refine project scope and estimates iteratively. Early collaboration can lead to innovations and efficiencies in materials, equipment, and methods.
Food For Thought
While ROM estimates are useful in the initial stages of project planning, they shouldn’t be the foundation for selecting design and construction partners. By recognizing the limitations of ROMs and embracing a more comprehensive evaluation approach, clients can make better-informed decisions that contribute to successful project outcomes.
It’s important to remember that, much like in life, the lowest initial cost doesn’t always equate to the best long-term value. Savvy buyers delve deeper to discover the true potential of their design and construction partners.
Estimate Data Collection Guide
- Site Plan with Acreage
- Geotechnical Report, if available
- Current and Future Zoning
- Infrastructure Locations and Sizes
- Electrical Load Requirements
- Number of Employees / Shifts
- Stored Pallet Quantity / Sizes
- Facility Height Requirements
- Desired Dock Positions
- Refrigeration Requirements
- Automation or Manual Operations
McCownGordan Construction (2024) https://mccowngordon.com/the-pitfall-of-pinning-hopes-on-rough-numbers/
