Cost Planning PDF

Cost planning Cost planning is a vital process in any construction project, as it helps to ensure that the project is delivered within the budget and meets the quality standards. Cost planning involves estimating the cost of the project, setting the budget, monitoring the expenditure, and controlli...

Cost planning Cost planning is a vital process in any construction project, as it helps to ensure that the project is delivered within the budget and meets the quality standards. Cost planning involves estimating the cost of the project, setting the budget, monitoring the expenditure, and controlling the cost variations. Cost planning can be done at different stages of the project, such as feasibility, design, tender, and construction. Costing mean applying prices to schedule of items of labour and materials in order to obtain an approximation of the cost of a construction project. Cost planning and cost control is not only to determine the probable cost of a building but to control the design development throughout the project, and to provide the client with value for money. Importance 1. It helps to optimize the design and construction methods, as well as the materials and resources, to achieve the best value for money. 2. It helps to reduce the risk of cost overruns, delays, disputes, and claims, by providing a clear and realistic budget and contingency plan. 3. It helps to enhance the quality and performance of the project, by ensuring that the project meets the specifications, standards, and expectations of the client and the end-user. CHARACTERISTICS OF A GOOD COST PLANNING 1. Ensure that the tender figure is as close as possible to the first estimate, or any likely difference is anticipated and within acceptable range. 2. Ensure that the funds available for the projects are allocated effectively and economically to the various elements and sub-elements. 3. Always involve the measurement and pricing of approximate quantities at some stages of the process. 4. Aim to achieve good value at the desired level of expenditure. Cost planning process The cost planning process can be divided into four main stages: 1. Cost estimation: This is the process of predicting the costs of the project based on the scope, schedule, resources, quality, and risks. cost estimation can be done using various methods, such as analogy, parametric, bottom-up, or top-down. Cost estimation should be done at different levels of detail and accuracy throughout the project life cycle, depending on the availability of information and the degree of uncertainty. For example, a rough order of magnitude (ROM) estimate can be done at the initiation stage, while a definitive estimate can be done at the planning stage. 2. Cost budgeting: This is the process of allocating the estimated costs to the project activities and work packages. Cost budgeting helps to establish the baseline for measuring the project performance and progress. Cost budgeting should be done in alignment with the project scope and schedule, and should consider the project constraints and assumptions. For example, a cost budget can be created using a work breakdown structure (WBS) and a network diagram. 3. Cost monitoring: This is the process of tracking and recording the actual costs incurred during the project execution. Cost monitoring helps to compare the actual costs with the planned costs and to identify any deviations or variances. Cost monitoring should be done regularly and systematically, using appropriate tools and techniques, such as earned value management (EVM), cost variance analysis, or cost performance index (CPI). 4. Cost control: This is the process of managing and adjusting the project costs to ensure that they remain within the approved budget. Cost control helps to prevent or minimize the negative impact of cost overruns and to optimize the use of the project resources. Cost control should be done proactively and reactively, using appropriate actions and strategies, such as change management, contingency planning, or value engineering.