QTS 316 - 1 PDF - Construction Cost Control

Course Outline A. Cost control B. Preliminary estimates and methods of its preparation C. Cost planning and methods of its preparation A. COST CONTROL Cost is important to all industry. Construction industry just like any other business firms aims at producing the product at the minim...

Course Outline A. Cost control B. Preliminary estimates and methods of its preparation C. Cost planning and methods of its preparation A. COST CONTROL Cost is important to all industry. Construction industry just like any other business firms aims at producing the product at the minimum cost and at profit maximization. The success of any organization is judged by the action of the management in controlling the cost. Cost control involves all methods of controlling the cost of building projects by preventing waste in terms of materials, labour and plants right from inception to completion of the project. The objective of cost control is to manage the delivery of the project within the approved budget. Essence of control in construction 1. To avoid sunk cost: For the purpose of project management and control, it is not sufficient to consider only the past record of costs and revenues incurred in a project. Good managers should focus upon future revenues, future costs and technical problems. Generally, past expenditures represent sunk costs that cannot be altered in the future and may or may not be relevant in the future. For example, after the completion of some activity, it may be discovered that some quality flaw renders the work useless. Unfortunately, the resources expended on the flawed construction will generally be sunk and cannot be recovered for re-construction. 2. To avoid cost overrun due to not completing the project within the stated time Project managers must also give considerable attention to monitoring schedules. Construction typically involves a deadline for work completion, so contractual agreements will force attention to schedules. More generally, delays in construction represent additional costs due to late facility occupancy or other factors. Just as costs incurred are compared to budgeted costs, actual activity durations may be compared to expected durations. In this process, forecasting the time to complete particular activities may be required. Cost plan: A cost plan is a more strategic document and can consist of series of cost estimates which are formed at various stages of design development. A cost plan is prepared to include all construction costs, all other items of project cost including professional fees and contingency. The purpose of the cost plan is to allocate the budget to the main elements of the project to provide a basis for cost control. 1  Cost Control Terminology A number of terms are used widely in cost control work and it is deemed advisable to define and explain these terms prior to their use. 1. Budget: A development budget study is undertaken to determine the total costs and returns expected from the project. The budget gives the itemized project costs. 2. Cost plan: A cost plan is prepared to include all construction costs. This is a statement of the proposed expenditure on each section or element of a new project. Cost plan is prepared on an elemental basis. The purpose of the cost plan is to allocate the budget to the main elements of the project to provide a basis for cost control. Each item of cost is usually regarded as a cost target and it is normally expressed in terms of cost per square metre. 3. Cost check: This is the process of checking the anticipated cost of each section or element of the building against the cost target in the cost plan as detailed designs are developed. 4. Cost analysis: This is the systematic breakdown of cost data of buildings already planned or built on the basis of elements, which can be used in cost planning of future projects. In addition, it is often supplemented with specification notes, information on site and market conditions as well as various quantity factors which include wall to floor ratios. 5. Element: An element is a component or part of a building that fulfils a specific function(s) irrespective of its design, specification or construction, such as walls, floors and roofs. 6. Cost research: This involves all the methods of investigating building cost and their interrelationship, including maintenance and running costs, in order to build up a positive body of information which will form basic guidelines in planning and controlling the cost of future projects. This includes the compilation of cost databases and other statistical cost information with the aid of computers. 7. Costs in use: This is the process of investigating the total costs of building projects such as initial capital costs, maintenance costs and running costs throughout the predicted lives of the buildings. 8. Difference between cost in use and life cycle costing. Which one supersede other? Life cycle costing comprises the total cost of an asset over its operating life, including land acquisition costs and subsequent operating cost and possibly its disposal at the end of its operational life. 9. Cost study: This involves breaking down the total cost of buildings. The objectives of breaking down the building cost include: i. to reveal the distribution of costs between the various parts of the building ii. to relate the cost of any single part or element to its importance as necessary part of the whole building iii. to compare the costs of the same part or element in different buildings iv. to consider whether costs could have been apportioned to secure a better building v. to obtain and use cost data in planning future buildings, and lastly vi. to ensure a proper balance of quantity and quality within the appropriate cost limit 2 The Purpose of Cost Control The purpose of cost control can be generally identified as follows: a. To limit the client’s expenditure to within the amount agreed. In simple terms this means that the tender sum and final account should approximately equate with the budget estimate. b. To achieve a balanced design expenditure between the various elements of the buildings. c. To provide the client with a value-for-money project. This will probably necessitate the consideration of a total-cost approach. Cost, Price and Value The terms cost, price and value will represent different interpretations to different people. Their particular meaning generally lies in the context in which they are being used. It must also be remembered that much of the terminology used in the construction industry has a special interpretation appropriate only to this industry. Cost, to the building contractor, represents all those items included under the heading of his expenditure. His price is the amount charged for the work he carries out, and when this is received it becomes his income. The difference between the two is his profit. The price, however, that the building contractor charges the building owner for doing the work is to the latter his building costs. It is not surprising, therefore, to realize how easy it can be to confuse these two terms if used incorrectly. To adapt the famous quotation, ‘one person’s (builder’s) price increase is another person’s (building owner’s) cost increase’. Value is a much more subjective term than either price or cost. In the economic theory of value, an object must be scarce relative to demand to have a value. Where there is an abundance of a particular object and only a limited demand for it, then, using the economic criteria, it has little or no value attributed to it. Value constitutes a measure, therefore, of the relationship between supply and demand. An increase in the value of an object can therefore be obtained through either an increase in demand or a decrease in supply. Maximum value is assumed to be found when a required service or function is attained and when the cost of providing that service or function is at a minimum. Any increase above the required level of either service or function, for a small extra cost, would often be perceived by clients as better value. A more meaningful approach when applied to the built environment considers the following four components that when aggregated combine to provide a clearer picture of value: Use value. This is the benefit attached to the function for which the item is designed Esteem value. This attribute measures the attractiveness or aesthetics of the item Cost value. This represents the costs to produce or manufacture the item and to maintain it over its period of possession or life. Exchange value. This is the worth of an item as perceived by others who are primarily interested in its acquisition. Cost Advice Throughout the development cycle the construction professionals especially quantity surveyor will be called on to advice the client on matters of cost. This cost advice will be necessary regardless of the method used for contractor selection or tendering purposes. The advice is particularly crucial at the early stages of project inception. It is at this time that major decisions, often affecting the size and quality of the works, are determined, if only in outline form. It is important therefore that the cost advice given be as reliable as possible, so that clients can proceed with the greatest amount of confidence. Quantity surveyors are 3 widely recognized within the construction industry as the most appropriate cost advisers. Their skills in the measurement and valuation of construction work are without equal. The type of cost advice required will vary depending on the individual circumstances and the nature of the design and specification information available. The types of cost advice which may be required at the different stages of the development cycle may include a combination of the following: i. Budget estimating based on a client’s brief ii. Cost advice on different tendering and contractual arrangements iii. Pre-tender price estimating iv. Comparative costs of alternative design solutions v. Elemental target costs for cost planning vi. Final accounting vii. Cost analysis of accepted tenders viii. Costs-in-use B. PRELIMINARY ESTIMATE AND METHODS OF PREPARING APPROXIMATE ESTIMATE Approximate estimating aims at providing a preview of the probable tender figure with the method employed often being influenced by the amount of information available. Approximate estimating is carried out during the preliminary stage of a project by the Q.S in order to forecast its likely cost. The estimate prepared at this stage is referred to as approximate or preliminary estimate. It enables the client to be aware of his financial commitment as early as possible before embarking on detailed design work, it also enables the architect and other engineering consultants to know the specific cost limit of the client and provides cost information which will assist the design team during the various steps of design stage. The principle of preliminary estimating of construction costs is based on the recognition that what has been constructed in the past can to a large extent be replicated bearing in mind the need for necessary modifications and adjustment. An estimate produced by a Q.S should based on the information available, therefore when preparing an estimate it is important to include all specification details available and essential to indicate any assumed quality standard. Preliminary estimating should involve the following stages: i. Measurement of quantities ii. Pricing of items iii. Price adjustment where necessary. Methods of preparing approximate estimates Methods for cost estimation vary as the project evolves from the early stages of conception to the construction phase. In principle, as the project evolves, more information becomes available which eventually determines the type and method of estimation to be used. The more detailed the information the more the accurate of estimates prepared. Cost data of previous constructed project are used to determine the cost of future project. Nevertheless, estimation methods can be classified into three categories; Category A: Single rate estimating methods i. Functional unit/unit method (nr) ii. Cubic capacity/cubic method (m3) iii. Floor area/superficial (m2) iv. Storey enclosure (m2) 4 Category B: Multiple rate estimating methods v. Elemental vi. Approximate quantities Category C: Computer aided estimating - Cost model Single Rate Estimating Methods a. Functional Unit/Unit Method This method is used at the inception of the project when the client only have an idea of number of items or people which he wishes to accommodate within the proposed structure. This method of estimating requires a great deal of skill to obtain an accurate figure. The figure obtained should be confirmed by other method as drawings are developed. At this stage, it is assumed there are no drawings. It is encouraged that probable cost arrived at should be given in range form. That is N 5,000,000.00–N 6,000,000.00 Cost = Quantities * Rate For hospital, it is cost/bed * number of proposed beds Theatre, it is cost/seat * ditto seats Car park, it is cost/car * ditto cars Worked Example If existing 250beds hospital cost N 200m 200,000,000.00 Cost/bed = = 800,000.00/bed 250 For new hospital of 180/beds, = 180 * 800,000.00 = 144,000,000 Allowance is made for differences in cost that had arisen since the buildings were constructed such as variations in site conditions, design, form of construction, material, methods etc. e.g. Probable cost = 180 * N 800,000.00 * i = 144,000,000i Where i = inflation Assumed inflation rate to be 15% = 180 * 800,000 * 0.15 = 21,600,000 Therefore, probable cost will be cost + inflation rate = 144,000,000 + 21,600,000 = N165, 600,000 Advantages i) It can be used to indicate the likely cost range of a project before drawings are made available by the Architect and other Engineers. ii) It can be used to facilitate comparison between buildings to indicate whether the cost of a project is reasonable in relation to buildings of similar usage Disadvantages i) It cannot be used to estimate the cost of a specific building as adjustment cannot be accurately made to the applied rate. ii) Items not normally included in the unit cost such as external works and “abnormal” costs will have to be assessed separately. 5 2. Cubic Method The popularity of the method has fast being replaced by the superficial method. The volume of the building is calculated using the rules set out by the Royal Institute of British Architects (RIBA). It provides for multiplying the length, width, and height of each part of the building, expressed in (L x B x H) volume. The method of determining the height varies according to the type of roof and whether or not the roof space is occupied. The rules are briefly as follows; a) The length and width are measured over all walls b) The height is measured from the top of foundation to; i. half way up to slope of a normal pitched roof in this case, it is assumed that we have normal dwelling with unoccupied pitched roof. The height (H) is determined as follows; H= h1 + ½ h2 Where H = height of the wall h1 = height of wall under wall plate h2 = height of king post above wall plate ii. 0.61m above the flat roof In this case, the height dimension is taken 600mm above roof level except where the roof is surrounded by a parapet wall which has a height of in excess of 600mm. Then the height will be measured to the top of the parapet wall. If the parapet wall is less than 600mm the minimum height of 600mm will still be assumed. H = h + 600mm (where parapet ≥ 600mm) H = h + 800mm (where parapet is 800mm) Advantages of Cubic Method 1. It is useful for buildings requiring space heating and for steel work in factory buildings, warehouses or industrial buildings which require voluminous working and storage spaces. 2. Essentially the method is relatively quick and simple to use as it gives some indication of likely cost. Disadvantages of Cubic Method i) The unit of measurement is highly artificial and the single rate is difficult to adjust in cases of significant variations in quality of the project. ii) The method does not take account of quantity variations which may occur in horizontal components of the building. iii) Care should be taken in determining what items are included in the rate adopted. 3. Floor Area/Superficial Method This is the most popular method of estimating during the early stages of a project once the general outline drawings have been prepared. In this method the total floor area of the building on all floors is measured between the internal faces of the enclosing external walls, with no deductions for internal walls, partitions, stairs, landings, lift shafts, passages etc. A unit cost is then calculated per square metre of floor area and the probable total cost of the proposed building is obtained by multiplying the total area by the calculated unit cost. Where the building varies substantially in constructional methods or in quality of finish in different 6 parts of the building, it will probably be advisable to separate the floor area to enable different unit cost to be applied to the separate parts Advantages i) The accuracy of measurement to the Architect and clients and the preparation is usually simpler than the cube method ii) Most published information on building costs are expressed in terms of the cost per square meter of gross floor area (GFA) of the building. Disadvantages i) It does not directly take account of changes in shape and the overall height of the building ii) It accuracy depends on the use of rate based on project of similar storey height, size, plan shape, and form of construction. Differences in these quantities and adjustments for quality are difficult to address accurately on the single price rate method iii) Care should be taken in determining what must be included in the rate. Additional items such as external works and “abnormal” costs would have to be estimated separately using different price rates. 4. Storey Enclosure Method This method was discovered by W. James in 1954 and has very little application in practice. It involves measuring external walls, floor and ceiling which enclosed the storey. If used with care, it could result in a better method of comparing buildings than any of the previous ideas mentioned as it takes into account most of the more expensive items in a building and allows for some differences in the; i) Plan shape and storey height (by measuring external wall area) ii) Total floor area (by measuring area of each floor) iii) Overall height of the building (by using different multiplying factors for different storey) The method is unpopular because it involves more calculations than other methods. Quantity Surveyor has to spend quality time to get suitable rates from past project because its rates are not published. Rules of Measurement 1. To allow for the cost of normal foundations, the ground floor area (measured in square metres between internal faces of wall) is multiplied by a weighting factor of two (2) 2. To cover the extra cost of work below ground level a further factor of one (1) (making three (3)) is applied to basement floors. 3. To provide for the extra cost of upper floors and additional weighting factor is applied to the area of each floor above the lowest. Thus the additional weighting factor for the first suspended floor is 0.15, for the second is 0.30, for the third is 0.45 and so on. 4. No weighting (once) factor is applied to the area of the ceiling measured on plan to the external face of walls (whether flat or pitched roof) 5. Walls above ground level to eaves are taken once ( no weighting factor) 6. A weighting factor of two (2) is applied to walls below ground in basement. Basically, the aim of this method is to obtain a total superficial area in square metres to which a single price cost can be attached, and the effect of the various rules that have been outlined 7 is to apply a weighted cost factor to each of the main parts or elements of the building. To obtain the estimated cost of the building, the total of storey-enclosure units in square metres is multiplied by a single-price rate built up from the cost of previous similar projects. Summary of rule of measurement Floor Basement *3 Ground floor *2 1st floor * 2.15 nd 2 floor * 2.30 3rd floor * 2.45 and 0.15 for every additional floor Wall Basement *2 Ground to eave (parapet being ignored) *1 Roof this is measured on plan up to the external face of the wall and overhangs are ignored. i.e. no different between flat and pitch roof. Advantages i) This method recognize changes in plan shape, size, vertical positioning of areas within the building, storey height and basement Disadvantages i) All quantity adjustments are not automatically accounted for by this method ii) Quality adjustments are difficult to assess iii) The measurement unit produced is not definitive & is not understood easily by the architect & client iv) When compared with other single rate methods, more calculations are required v) Rates are not readily available to use for producing this type of estimates & considerable time is required in order to prepare suitable rates from previous projects C. COST PLANNING AND METHODS OF ITS PREPARATION Cost planning: This is a systematic application of cost criteria to the design process, so as to maintain a sensible and economic relation between cost, quality and appearance. Cost planning is often interpreted as controlling the cost of a project within a predetermined sum during the design stage and normally envisages the preparation of a cost plan and the carrying out of cost checks. Cost planning uses the information gained by cost analysis to maintain a surer control over costs of future projects. It provides statement of the main issues, identifies the various courses of action, determines the cost implications of each courses of action and provides a comprehensive economics picture of the whole. The architect and quantity surveyor should be continually questioning whether a specific item of cost is really necessary, whether it is giving value for money or whether there is not a better way of performing the particular function. Cost planning does therefore differ significantly from approximate estimating. As earlier said, cost plans are prepared on the basis of cost analysis of previous completed project with the application of necessary adjustments factors to predict the cost current project which can as well be used for future analysis. The plan prepared are referred to cost analysis. 8 Methods of cost planning 1. Elemental cost planning method 2. Comparative cost planning method 1. Elemental cost planning method The increase in the use of cost planning has made this form of estimating more important. It can be used to calculate a reasonable sum to be spent on a project and also the various part of the projects. This methods made use of cost analysis of similar project by adjusting any changes in the price of materials, labour or any changes in the economic conditions up to the date on which estimate is being produced. The cost is computed on a superficial or floor area basis but the overall superficial unit is broken down into elements and sub-elements. Gross floor area (GFA) of the project = total elemental cost cost/m2 GFA % of total cost = element cost x 100 Total cost Cost/m2 GFA = element cost GFA Worked example Let’s consider the cost data for base project to be used in preparing cost plan for the proposed building project using elemental cost planning method. S/N Elements Elements Cost % of Total cost Cost/m2 GFA 1 Preliminaries 1,200,800.00 2.49 400.60 2 Substructure 6,204,000.00 12.83 2068.00 3 Frames 8,052,468.00 16.65 2684.16 4 Roofs 4,836,204.00 10.00 1612.07 5 Upper floors 9,900,000.00 20.47 3300.00 6 Walls 3,602,292.00 7.45 1200.76 7 Services 3,756,900.00 7.77 1252.30 8 Furniture 6,800,000.00 12.41 2,000.00 9 External works 4,800,000.00 9.93 1,600.00 Total 48,353,664.00 100 16,117.89 The adjustment factors to be used in order to determine the cost for the proposed project are given to include: i. Inflation = 10% (positive effect) ii. Professional fee = 5% (Negative effect) iii. Design risk = 15% (positive effect) iv. Market conditions = 10% (positive effect) v. Time factor = 10% (positive effect) vi. Location = 15% (negative effect) 9  Solution 1st step Determine the GFA for the base project GFA = total cost 48,353,664.00 Cost/m2 GFA = 16,117.89 = 3000m2 2nd step Determine the cumulative effect of the adjustment factors 10-5+15+10+10-15 = 25% (adjustment factors) 3rd step Here , prepare a table titled cost plan of the proposed project Cost plan of the proposed project S/N Element cost Adjus Cost Cost limit % of total Cost/m2 tment implication cost GFA factor of adjustment factor 1 Preliminaries 1,200,800.00 0.25 2 Substructure 6,204,000.00 0.25 3 Frames 8,052,468.00 0.25 4 Roofs 4,836,204.00 0.25 5 Upper floors 9,900,000.00 0.25 6 Walls 3,602,292.00 0.25 7 Services 3,756,900.00 0.25 8 Furniture 6,800,000.00 0.25 9 External 4,800,000.00 0.25 works Total 48,353,664.00 0.25 10