Risk Management in Design

June 2006

In previous editions of the MDCAdvisor®, our contributors have addressed risk issues relative to budgeting and cost estimating as well as overall risk considerations. A key contributor to almost all of the potential project risk scenarios is the conception, development and execution of the design process for the project.

The design process has numerous areas of potential risk which must be managed or mitigated to protect the designer and his business entity. In today’s construction climate, a wise owner also wants his designer to have appropriate risk management skills as a signal of the designer’s attention to, and control of those little details which can later become major problems. While risk avoidance looms large in the eye of the design professional, there is an even bigger objective – to provide value-added service to clients and operate at a profit. Proper design performance is the first and largest step a firm can make towards successful risk management.

The most obvious areas of design risk involve two standard categories – errors and omissions, and scope definition. Many programs and policies have been developed to mitigate E & O risk. QC/QA programs, design check lists and project postmortem ‘lessons learned’ reviews have greatly aided design firms in the execution of their professions. There are other areas of risk which are not as easily categorized – and subsequently addressed. These can include project specific certifications which demand design professional ‘sign off’ but which require significant integration of aspects of the projects over which design professionals have little or no control such as LEED Building Certification or the FDA’s Risk-based GMP Compliance Approach which selects sites for FDA inspection based upon perceived ‘risk’ by the FDA. Risk can also be introduced into projects when new or developing technologies are being employed on a project. The cautious designer would typically lean toward technologies he or she knows well or have been in the marketplace for some time. However, the marketplace pushes change in systems, equipment, materials and methodologies in industry, so if you are not staying ahead of those changes you will likely be run over by them. The wave of EFIS issues in construction today serve to illustrate how a new product or technique can change the industry landscape and have major impacts, some of which are not felt until years later.

Another facet of design risk involves new technologies done for high-tech industries and projects. Many of these projects are very time-to-market sensitive and often the manufacturing process or product itself are brand new. Design and construction schedules often overlap such that facility designs are being finalized while integral process equipment and technologies are still being determined. The design must be flexible enough to accommodate the eventual project requirements, but firm enough to adequately control construction scope and cost. The use of fast track and hyper fast track execution strategies can create circumstances where designs seem to be completed ‘on the fly’ and errors or omissions can more easily occur.

A key element in managing risk is communication. The quality and timeliness of early communication can help to greatly reduce the likelihood of misunderstandings and potential disputes. Clear definition of client expectations, the designer’s intent, definition of acceptable performance and identification of potential ‘gaps’ where all of these items met can ensure that all parties are viewing the project from a similar frame of reference.

These philosophical concepts can be translated into tangible activities which should be communicated and agreed upon by all concerned (including design subconsultants) as the project progresses. The first step is to define and agree on the ‘nature’ of the project and the scope of work or services to be provided by the design professional. A common term for this document is the “Project Understanding”.

Next is a delineation of the framework in which the design will be done and in which the finished project will operate. This will establish the project’s design criteria which should include microlevel details such as operating schedules, room temperatures and ‘people counts’ in program spaces to macrolevel details, such as applicable codes and regulations and target ‘rate(s) of return’ or ‘cost of money’ for life cycle analyses. Lastly, where quantitative targets can be determined, the acceptance performance criteria should be listed including testing procedures and milestone points on the overall project schedule. This document is often referred to as a “Statement of Criteria” (SoC).

After the approval of the Statement of Criteria, the design team should prepare the conceptual and schematic design information necessary to define and describe the underlying principles and basic approaches for building systems and their major components. The document which contains this information is called the Basis of Design (BoD).

The BoD describes the building assembly and systems configurations, operating and control philosophies, redundancy and emergency operating requirements, primary space allocations, system flow diagrams and systems architecture diagrams. A properly prepared BoD and the schematic drawings can be used to develop realistic cost estimates early on. The BoD, along with cost estimates can be used to control ‘scope creep’ during detailed design. The BoD, like the Statement of Criteria, should be reviewed and agreed upon before the project proceeds further along. Buy in and sign off is essential to marshal the team; for the designer it should be a requirement before proceeding further into design.

The overall missions of the Project Understanding, the Statement of Criteria and the Basis of Design are to:

• Define what is needed
• Define what is expected
• Define what is being provided
• Define how it is supposed to work

Early and clear definition of these principal project specifics provides a solid foundation for detailed design and documentation.

The above approach is advisable for almost any project, but what about those tech projects? The one where the owner wants ‘something’ but isn’t quite sure what that ‘something’ is or how it is to work exactly.

One approach is to set up a separate task to research into and ‘qualify’ the range of ‘solution options’ available in the marketplace and arrive at a ‘most probable’ answer and proceed with design. In my design consulting career such a scenario arose on a laboratory project. The owner had an interest in variable volume fumehood exhaust systems which were new at the time. As a design firm we researched the range of technical solutions available, visited numerous vendors and sites and eventually wrote a scope of work and developed a design which could accommodate the top two ‘best available technologies’. In that particular instance, it was necessary to pick a technology because the fumehood exhaust system is central to the design of a laboratory that ‘filling in’ that aspect later would have stopped the entire process.

Another approach is to identify the key parameters necessary to support the ‘undefined process’ and develop a design which makes those services available to the process in capacities which cover a reasonable range of operation. The missing piece, so to speak, can then be either left out of the scope entirely and added as a change order or, where possible, an allowance be included in the budget for the final component so that costs are (somewhat) controlled. This allowance must be developed intelligently – rooted in reality. The design and installation of the ‘works’ can be let as a separate contract – a ‘two-piece’ process, or fit-out contract. The final details of the fit-out portion can be developed when the process is clearly identified. This approach is often used in the microelectronics arena where the building design and construction make up one contract and the ‘tool fit-out’ portion (which includes the installation of process tools) is a separate contract. Care must be taken by both the designer and the owner to prevent excessive cost or scope creep. The available capacities of the supporting services must be used as guidelines to the process tool provider to avoid major changes to the building contract.

Certification issues, such as LEED, can create what looks like a warranty on performance. This is a circumstance that could prove critical to a design firm in the event of a dispute. Care must be taken by the designer in the drafting of the contract to either allow access to the site during construction so that the design professional can gauge the extent to which the design intent is being met or to document the construction in some other fashion so that progress and compliance can be monitored and recorded. Energy efficiency is a key category for LEED certified projects. For issues like energy consumption, which must be measured over time, the design professional should include a requirement for regular monitoring and recording of building operating parameters. This will facilitate modeling the building’s energy utilization to see if the actual performance matches the expectation. The procedure should keep data logs of sufficient detail and duration to assess the performance of the building over time. There is an increasing influence in LEED or ‘green’ certification in establishing a project’s market ‘value’ and there are potential conflicts that could result if the LEED rating comes in less than expected or contracted. There should be some provision for the design professional to verify that maintenance was done in accordance with recommendations and that the facility was operated in accordance with the agreed upon intent. Superior energy performance is very much a team victory. While design is the key starting point, any design can be rendered ineffective by poor construction or poor operation and maintenance. The issues associated with green design and construction are expected to multiply as the practice becomes more accepted and certification of buildings becomes a government requirement in certain jurisdictions.

The recently enacted “21st Century GMPs” from the FDA have introduced risk-based compliance with federal regulations to the pharmaceutical industry. The original Food, Drug and Cosmetics Act mandated that the FDA inspect all domestic human therapeutic drug manufacturing facilities every two years. This is now virtually impossible with the number of domestic facilities and the lack of FDA internal resources to conduct inspections. Now the FDA selects sites to inspect based on the FDA’s perception of the risk of a particular facility, product or operation. At the same time the FDA is encouraging manufacturers to upgrade and modernize their processes and operations. Thus the design solution employed on a project could prompt inspections by the FDA which costs the manufacturer money to manage. How does the desire to minimize FDA scrutiny reflect itself in the design and if inspections are the result despite the design intention, how is this addressed by the parties to the contract? Reviews with the FDA prior to completion of detailed design might be a good time to confirm or finalize design fees associated with FDA compliance and approval.

As it can be seen from the above, managing risk in design is more than just a big checklist or even an in-depth design review. Scope definition, contract terms and performance targets are all a part of risk management and it is just as valuable for the owner to consider the possibilities as the designer. On successful projects, all parties do well.