04/19/23

ROLE OF QUANTITY SURVEYOR AS PROFIT CENTER

AND COST ESTIMATION METHODS

Er. V.K. Sharma

04/19/23

CIVIL ENGINEERING

• Civil Engineering – Is considered as the mother of all engineering

disciplines– It is also simplest of all engineering disciplines– Because of its simplicity it is also the most

complex branch– Requires interaction with a wide range of

professions and handling of complex situations in difficult and new environments

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RAMIFICATIONS OF CIVIL ENGINEERING

• The ramifications of this discipline are far and wide ranging– A well designed and executed project adds to

individual and national wealth– Converts cash into kind where possibility of

appreciation of investment is high– Is one of single largest contributor to GDP– Is only second to agriculture in generating

primary and secondary employment

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RAMIFICATIONS OF CIVIL ENGINEERING

• HOWEVER a poorly designed and executed project is:– A sure recipe of disaster

• Case in point is damage caused in a recent earthquake in Haiti

– Cause of wastage of precious resources– Wastage of money– Source of pollution and creator of GHG

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ROLES OF CIVIL ENGINEERS

• Except for generalist civil engineers, who are involved in each sphere, each specialist engineer is obsessed with one aspect of construction activity– Structural engineer – structural integrity– Services engineer- efficient services designs– Construction supervisor- Speed of execution– Quantity surveyor or Cost Engineer

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ROLES OF CIVIL ENGINEERS

• Initially a generalist civil engineer performed all or most of the roles

• Post some major natural calamities the role of structural designers gained prominence

• Now in view of the competitiveness in the industry the role of Quantity Surveyors has gained importance and is considered as a highly specialized role

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ROLE OF QUANTITY SURVEYOR

• A quantity surveyor, amongst all specialist civil engineers, is the only professional whose sole obsession is “COST”

• Cost prediction, monitoring and control is what quantity surveying is all about

• They provide independent, objective, reliable and accurate capital and operating cost assessment which are used for investment funding and project control

ECONOMIC ANALYSIS OF PROJECTS

• Monetary evaluation of alternatives for meeting a given objective

• Somebody has to define the problem, identify feasible alternatives which can achieve the desired objectives, determine whether an economic analysis is necessary and if so how much effort has to be put in, determine the uncertainties, identify the non tangible advantages and present the best solution

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

– Help in making investments possible on scientifically pre-determined values

• The property market plays a key role in the global economy; comprising, in some countries, as much as 20% of the Gross National Product. With a resource this vital, businesses, governments and society need advice they can trust

• This advice can be given only by a QS

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• How?• By applying principles of Value

Engineering 

– VE is a systematic evaluation procedure directed at analyzing the function of materials, systems, processes, and building equipment for the purpose of achieving required functions at the lowest total cost of ownership.

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

– It is a team approach that analyzes a function by systematically developing the answers to such questions as: what is it?; what does it do?; what must it do?; what does it cost?; what other material or method could be used to do the same job without sacrificing required performance or degradation to  safety, reliability, or maintainability?

• VE is concerned with elimination or modification of anything that adds costs without contributing to the program functional requirements. Reductions in a project's scope or quality to get it into budget are not considered VE—those decisions are simply "cost cutting".

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• Cost V/s benefits- use an Analytic Hierarchy Process– Challenge is identifying benefits because they

resist quantification – These typically include 

• Aesthetics • Safety • Environmental impact • Historic preservation.

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• How?• Help Look at whole lifecycle costs (LCC)

– Lifecycle cost analysis takes into account all costs of acquiring, owning and disposal of a building or a building system

– This is useful when project alternatives, which fulfill same objectives but differ in initial and operating costs have to be compared

– Aim is to obtain lowest overall cost of ownership consistent with quality and functionality

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• LCC– Issues being factored in while determining life

cycle costs are:• Initial cost of acquisition• Finance charges• Sustainability • Ease of maintenance • Long term cost of operation including energy and

fuel costs• Cost of disposal• Social responsibility

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• LCC is usually split into 4 phases:– concept + proposal, – design + development, – build + install and – finally, the most significant phase, operation +

support • Since the majority of life of most assets is spent in the operate and maintain

cycle and it is in this phase, that the asset creates the value contribution to the organization and also absorbs costs of maintenance we have to be careful in planning stage to ensure that this component remains low. In systems where outright sale of a product is involved this phase does not impact the developer excepting as a good business policy but in case the asset is being leased out this will be very important. In a lifecycle of 30 years cost of salaries required for maintenance purposes in itself could be very high!

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• Central to LCC analysis is a system of breaking down cost into different components.

• Cost Breakdown System (CBS) varies in complexity depending on projects and the manner in which they are being planned, executed and marketed. Its aim is to identify all the relevant cost elements and it must have well defined boundaries to avoid omission or duplication.

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• Whatever the complexity any CBS it must include all cost elements that are relevant to the option under consideration including internal costs

• Each cost element must be well defined so that all involved have a clear understanding of what is to be included in that element.

• It would be necessary that each cost element should be identifiable with a significant level of activity or major item of equipment or operation.

• CBS also clearly defines ‘cost spend profile’ which helps in evaluating the options and coming to a rational conclusion.

QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• How?

• Manage costs– Management of cost throughout the Planning,

Design, and Development Process is most essential

– Cost Management is employed as a means of balancing a project's scope and expectations of quality and budget.

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COST MANAGEMENT

• How?– Define the scope, the

level of quality desired, and the budget

– Ensure that the scope, quality, and budget are aligned

– Monitor and manage the balance of these three components throughout the life of the project

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• Advice to owners– Costs can be managed– Get a specialized company to do this job

• Ideally the firm charged with managing the costs of the project should be hired directly by the owner, early in the process, and should be independent of both the architect/engineer and the construction contractor

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

• How?– Management of variations/changes– During construction the focus shifts from

predictive cost estimating to reactive cost management of any changes in the work.

– Changes arise from a number of different sources—unforeseen conditions, owner-generated changes, drawing errors and omissions, code issues or contractual claims.

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QUANTITY SURVEYOR-HELPING IN GENERATING PROFITS

– Changes can arise from on-going proactive cost management also, either generated by the design team or even the vendor, where one of the parties proposes a better-value substitution (known as Value Engineering Change Proposals or VECPs).

– Changes should be reviewed by the design team for entitlement—is it really a change to the scope and are there any credits due? Then the cost consultant should review the pricing against the contract and industry norms, leading to an independent estimate for presentation to owner

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COST

• Is a function of – Quantity – Unit rate

• While computing quantities accurately is easy, especially with use of IT tools, assessing rates is difficult and calls for experience and in-depth knowledge of market and engineering processes

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RATES

• Rate is a function of:– Availability of resources at time of

execution• Manpower – technical, skilled, unskilled• Materials• Machinery

– Management competencies

– Government policies

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RATES– Market situation

• Volume of work available and number of agencies available to execute the same –demand & supply

– Time/season when an item is to be executed

– Duration in which it is to be executed

– Geographical location of the project

– Social conditions prevailing

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RATES

• Assessment of requirement of resources is easy and will vary within a small band

• Assessment of impact of other factors is difficult and will be determined by the experience and knowledge of the QS

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COST ESTIMATION METHODS

• Guess Estimate

• Initial or preliminary estimation

• Detailed estimation

• Tendered rates

• Final costing

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COST ESTIMATION METHODS

• Guess estimate- based on past experience of similar projects– Good for projects where making profit is not

the main purpose– OK for personal works or very small projects

• That some use it even for complex business proposals is another issue

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INITIAL OR PRELIMINARY ESTIMATION

• This is grossest form of estimation– Basically it involves assessing total or gross

quantities and using historical data to assess costs

– Is used to make initial assessments of likely costs and/or time

– Accuracy at this stage can be compromised if initial planning is sketchy or data about site conditions is not reliable

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INITIAL OR PRELIMINARY ESTIMATION

– In case of buildings it involves calculating plinth area or total built up area multiplied with assessed/historic rate per unit area

– Can be accurate if sufficient historical data is available and all elements are similar and accounted for

– Can be used for taking a call on areas to be built or developed

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DETAILED ESTIMATION

• Is taken up when most project details have been firmed up

• Presents a fairly reliable estimate of the project and likely total cost

• This involves computing accurately quantities of different elements such as:

Sub head Element Sub head Element

Civil Earth work Electrical Low side

PCC High side

RCC HVAC Low side

Brick work High side

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DETAILED ESTIMATION

• Rates for each building element is also assessed from first principles or using standard schedules, updated for local site conditions

• Correct computation of quantities and accurate assessment of rates is the key to accuracy

• Though this is primarily a mechanical exercise yet it is very important

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TENDERED RATES• Based on detailed estimates tenders are invited

for execution of project• Tendered rates are influenced by:

– Market conditions– Govt. policies– Financial position of owner and executing agency– Location– Timing of execution– Time permitted for execution– Type of structure– Expertise and experience of executing agency

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TENDERED RATES

• Tenders could be of following types:– Lump sum– Percentage rate– Item rate– Design build

• Competitiveness of the tender and expertise of person assessing these will ultimately determine likely final costs

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TENDER EVALUATION

• If the QS has factored all the factors which affect the rates then variation in estimated and tendered rates will be marginal

• Items having high difference can be identified and rates negotiated for these. This, however, will be possible only in item rate tenders

• A good QS will always examine the quantities for items where rates quoted are low or high to ensure that that there is no chance of variation in these. As variation in these could throw the tender evaluation haywire.

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FINAL COSTING

Proof of the pudding is in its eating• All the stages of estimation were just

estimation of likely cost• Final cost of project is known only at time

of completion or can be predicted during execution after work has started and reached beyond foundation stage

• If due diligence was not done at initial stages it can lead to a disastrous situation

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FINAL COSTING• If initial cost is ‘X’

– ( arrived at by multiplying total built up area with historical unit rates for the type of projects)

• It may become ‘X1’ at DE stage. – (This will be a aggregation of costs of different

elements derived as a function of quantity ‘q’ and assessed rate ‘r’)

• It may become ‘X2’ at tendering stage. – (This will be a function of quantities ‘q’ calculated in

DE & tendered rates ‘r2’)

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FINAL COSTING

• Final cost will be ‘X3’. – (This will be a product of actual quantity ‘q3’

and tendered rate ‘r2’)

• Good estimation will ensure that ‘X3’ is equal to or very near ‘X’

• Variations could arise if quantities were computed wrongly or if initial rates were not assessed correctly

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VALUE FOR MONEY

• Value for Money (VFM)– Ultimate aim of all professionals– It is essential that while proceeding with any

project each decision is taken after assessing whether we get VFM

– Professional QS have a major role to play in this

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CONCLUSION• Adopting an approach, where reliability in

estimation and costing is designed into the asset, using the methods of whole life cycle costing, ensuring accuracy in assessment of quantities, accuracy in prediction of rates can make significant savings over the life of the asset and making correct decisions, should be adopted by all Quantity Surveyors

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THANK YOU FOR YOUR ATTENTION

Er. V.K. Sharma