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Appendix C The Construction Budget Preparation Process at IBM Corporation Prepared by Edward Marshal Based on business needs, operating units within the corporation working with the Real Estate and Construction Division (RECD) prepare a Statement of Requirements (S/R) to establish the need to house people and/or equipment in new facilities. The S/R includes absolute requirements for these facilities and also, in some cases," wish lists" of additional elements which the Operating units would like to incorporate, if feasible. The Statement of Requirements is quantitative and covers approximate size, intended population, location, and inter-relationships. It also lists the need for such special spaces as cafeterias, auditori- ums, computer spaces, classrooms, etc. Once the requirements have been determined the Consulting Services Group, comprising archi- tects and engineers, takes the S/R and develops a Design Criteria (D/C) or building program which is qualitative in nature. Depending on the type of proposed building, certain Corporate Facilities Prac- tices (CFPs) are observed. These documents define the minimum standards which must be maintained in the design of the facility. Next, the D/C is translated by Consulting Serv- ices into a set of Estimating Assumptions (E/A) for all trades. The assumptions form the basis from which the Statement of Requirements could be built, to IBM's standards. At this time the building is purely hypothetical in nature, as all this preparatory *Edward Marsch is We Director of Planning/Analysis of IBM's Real Estate and Construction Staff. 31 work takes place before retaining an Architect. IBM has developed a standardized computerized format for these Assumptions which allows the group to work logically through the proposed project. It includes the elements and systems most commonly found in typical IBM facilities. RECD has developed a standard Construction Library. This document is a detailed listing of all construction elements found on IBM projects. The library is coded specifically for IBM's use and it bridges the Masterformat/CSI trade numbering stan- dard format to IBM's Construction numbering for- mat. It is designed to be adapted for use on each IBM project, and ties in with the Standard Estimat- ing Assumptions. RECD's estimating department prepares a budget estimate from the S/R, D/C, and E/A. As nearly as possible many of the elements of the proposed building are incorporated into the es- timate, and the pricing reflects RECD's experience of constructing buildings in many parts of the coun- try. In the civil, structural, and architectural trades, Unit Pricing is usually performed. For the me- chanical and electrical trades, the estimator gener- ally breaks down his estimate into labor, material, and equipment costs. To the construction cost, the estimator adds line items including architects' fees, IBM costs, and any other special considerations to reach between the budget and a recently completed project. This provides a sanity check to his estimate. The budget estimate, the bridge and a prelimi- nary schedule are then presented to IBM's senior management for funding approval.

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32 Assuming approval of the project, an architect is retained to begin design. RECD provides him with copies of the SIR, D/C, CFPs, and Construction Library. He is also given a construction budget within which he must design the facility. IBM specifically avoids giving him copies of the Esti- mating Assumptions and the Budget Estimate since these could well limit his creativity in reaching a successful design solution. The architect prepares a design solution for IBM's review, together with his own budget estimate which is presented in the Construction library format to enable IBM to compare the costs against the ongi- nal budget. After the scheme has been approved, the A-E prepares preliminary drawings which are submitted to RECD for review and comment. IBM examines the plans and specifications and verifies that the estimate is reasonable for the scope de- scribed. At this early stage the estimator ensures that the project remains within budget while the Consulting Services Group monitors overall de- sign. As a team, the two groups manage the devel- opment of the project. If, at any time, the cost for the proposed project exceeds the budget, RECD initiates a series of meetings with the A-E and the design team, to review the design with the intention of reducing the overall cost without sacrificing the quality of the job. Such `'Value Engineering" could affect any part of the job, from substituting a structural sys- tem (steel vs. concrete frame), a mechanical system (ducted return vs. plenum), or an electrical system (conduit and wire vs. BX cable). APPENDIX C As the project becomes better defined, each level of detail is checked from preliminary and interme- diate stages Trough final drawings. Each stage is accompanied by estimates reflecting the increased level of detail and are matched against the original estimate. The Construction Library, as mentioned above, is used throughout the planning and budget stages of the project and into the bidding cycle. Contractors are required to submit their propos- als when bidding the work, using the IBM/CSI format in order to provide estimate companson. Payment requisitions are submitted using the same format, and IBM's accountants use the same docu- ment to capitalize the project. The Library is a major resource in the creation of an Historical Data Base from which much valuable information can be obtained for use in the preparation of budgets for future projects. Throughout the course of the project, IBM uses the budget estimate as a basis for comparison be- tween the original concept and the finished prod- uct. During the buy out phase of the project and in the negotiation of change order work the IBMICSI format provides ready access to cost data, which eliminates much of He guesswork otherwise en- countered, primarily because the format allows the cost of the work to be broken down into fairly concise construction elements. As can be seen from the above narrative, IBM places great importance in developing detailed, realistic budgets, and then manages the project to it.