Cost Studies

Cost StudiesNTK Lokuliyana

Cost PlanningA method of controlling the cost (price to client) of a project within a pre-determined sum up to the tender stage.

It attempts to measure and value the cost of work after it is designed and before it is executed (built).Is a process of pre-costing the design proposal Represent the total picture of anticipated costs Provides a clear statement of issues and isolated the courses of action and their relative cost, Provide a guide to decision making.Cost planning aims at ascertaining costs before many of the decisions are made relating to the design of a building. provides a statement of the main issues, clarifies the various courses of action, determines the cost implications of each course provides a comprehensive economic picture of the whole.

Purpose of Cost PlanningEnsure that clients are provided with value for money.Make clients and designers aware of the cost consequences of their proposals.Provide advice to designers that enable them to arrive at practical and balanced designs within budget.Integrate costs with time and quality.To keep expenditure within the amount, or limit, allowed by the client.

PRINCIPLES OF COST CONTROL

frame of reference (cost limit); method of checking (cost target);means of remedial action (cost check).

Frame of Reference

establishing a realistic first estimate;planning how this estimate should be spent among the elements of the building.

Method of Checking

The cost planner, in conjunction with all members of the design team, must detect and measure variances from the cost targets previously established

Variances between the sum total of the cost targets and the overall cost limit will require remedial action to be takenRemedial Action

The remedial action must be taken quickly and, ideally, as soon as the cost overruns become known and the decisions communicated to everyone in the team.Remedial action thus ensures that total project expenditure is contained within the cost limit.Occasionally, suitable remedial action is impossible, and additional finances must be obtained to complete the project. the presentation to the client of a carefully completed and detailed revised budget is the most convincing argument to justify the need for additional funds

PRE-CONSTRUCTION COST CONTROL

(2000) Pre-stage A: Establishing the NeedProject Inception or Initiation(Establish the Budget)

client considers his building requirements and appoints and architectestablish the projects objectives and identify the limit of the costs Stage A: Options Appraisal(cost of preferred solution)

number of basic aspects will have to be reviewed by the client, project manager and the emerging design team:functional performance (fitness for purpose);quality, profile, image (firmness and delight);timing for operational implementation (the programme);available finance or funding (cost limit or budget);value for money.

Stage B: Strategic Briefing(Target Cost)

the organisations mission/vision statement;outline of business case;context of project and strategic management decision framework;organisation and structure;functional expectations of facilities;size and capacity expected in new facilities (operational range specified);environmental qualities and aims;proposed level of servicing (operational and whole life costing);building quality levels expected;project management structure with key reporting dates and lines of responsibility;programme or time frame;anticipated procurement path;budget or cost limit projected;client and user expectations (strategic not prescriptive);key performance indicators both during and on completion of project.

Stage C: Outline Proposals(prepare Initial Cost Plan)

The RIBA (2000) summarises the main activities at this stage as being:Commence development of Strategic Brief into full Project Brief. Preparation of Outline Proposals and estimate the cost. Review of procurement route.

Breake down in to elementsSubstructureSuperstructureFinishesFittings and FurnishingsServicesExternal WorkPreliminariesContingencies

Stage D: Detailed Proposals(Firm Cost Plan)

decisions affecting the cost/time/quality of a project The major activity is to make progress towards the: full design of the project, including planning arrangement, appearance, constructional method, outline specification and cost.all necessary planning approvals are obtained The Detailed Design Stage cost plan is based on the following information:

complete project brief;outline cost plan (from previous stage);final dimensioned sketch plans;elevations and sections;structural sketches with dimensions of members indicated;schedule of finishes;site layout;specification notes.

Stage E: Final Proposals(cost Checks; Design against cost Plan)

Aims - 1. to convert the detailed design into the finally agreed proposals that should not be substantially changed from this point onwards2. entire necessary documentation ready for submission to the various planning and other statutory authorities and to gain their approval for the project content.At the end of Final Proposals stageThe Final Proposals documentation matches the priorities and statements contained in the project brief.The elemental cost plan is within budget and is based on the agreed and approved Final Proposals documentation.Detailed planning approval is achieved.All parties sign off the project and the design is now frozen.

Stage F: Production Information (final cost checks of against design plan)

converting the Final Proposal information into the Production Information that becomes the tender documentation for the projectmain purpose of this stage is to conduct detailed cost checks for each element to ensure the cost targets and the cost limit have not been exceeded. The cost planner measures approximate quantities from the detailed designs for each element in turn, and prices these quantities using traditional estimating methods. The cost planner then informs other members of the design team of the estimates for each element.

Cost Planning Applications the Pre-design (Briefing)Stage:

Developers budget(residual analysis) V =L +B+ F+ P+ MV =Value, income or revenue derived from the proposed development;( the maximum amount to be spent on the buildings (capital works) if the cost of land is already known)L =Land costs and associated expenses;B = Building costs, allowances and fees;F =Finance costs on land and buildings;P = Developers profit (management costs or risk).M = Marketing costsFunctional unit method(cost per functional unit )

Schools, universities, colleges per student.Hotels, hospitals per bed.Offices per workstation.Restaurants, cafeterias per seat.Car parks per car space.ExampleNumber of functional units: 640 bedsCost per bed: 16,000Total estimated cost 10,240,000

Functional unit method Contd.Sources of information

previous records in the same office

Building Cost Information Service (BCIS) and published sources of building cost informationSuperficial method(cost per square metre)most popular methodscommonly used during the early stages can only be used when the floor area of the building can be assessed or measured reasonably accurately from drawings GFA of the building in square metres is multiplied by a suitable rate per square metreMeasurement of the GFA(RICS, 1969) should include:

All area occupied by partitions, columns, chimney breasts, internal structural or party walls, stairwells, lift wells and the like.Lift, plant and tank rooms and the like above the main roof slab.Sloping surfaces such as staircases, galleries, tiered terraces and the like should be measured flat on plan.

Measurement of the GFA (RICS, 1969) should exclude :

Any spaces fulfilling the functional requirements of the building, which are not enclosed spaces (e.g. open ground floors, open covered ways and the like).Private balconies and private verandahs.

Storey enclosure method

very little application in practicereference purposes rather than for practical applicationRules of measurement

Areas of the various floors, roof and external walls are calculatedeach is weighted by a different factor to provide a total number of storey enclosure unitsthe calculated storey enclosure units are multiplied by a storey enclosure rate (obtained from previously analysed projects)Why did the storey enclosure technique fall into disuse?

far more calculation than either the superficial or cube method.No rates for this method are published.cost planner would need to spend considerable time in calculating suitable rates from past projects.does not relate client requirements to the actual design It was superseded by the elemental methodCube method (cost per cubic metre)

similar to the superficial method, but based on the cubic content of a building rather than the floor areaRules of measurementmeasuring the length and breadth of a building between the normal outside face of the external or enclosing wallsThe height is measured from the top of the foundations to half-way up the slope of a pitched roof; or in the case of a flat roof, to 0.61 m above the level of the roofThe volumes of any projections (porches, dormers, chimney stacks, ducts, etc.) are added to the volume previously calculated.

Cube methodAdvantages

Simple, quick and easy to use.Satisfactory on works of a recurring nature.Suitable where cubic content of a space or a building directly influences the cost of an element (see the two elements noted above).

Disadvantages

Clients, architects and most design team members tend to relate to floor area rather than volume.Adjustments for plan shape, quantity or number of floors and quality are not easily made.No published sources of cost data.The cubic rates are sensitive because such large volumes are involved. It may be necessary to express the rates to three or four places of decimals.

Preliminary estimating as BUDGET DISTRIBUTING TECHNIQUES

Elemental methodFlexible and can be adapted to suit the level and complexity of information availableEarlier this method is used for gaining an accurate assessmentEarliest stage the project can be reasonably pricedInitially using the Group ElementsTranslating this into the Standard List of Elementscontinuous review of the elemental estimate as the design progresses through the various stages.Elemental method

Advantagescan be used with suitable adjustment at all stages esEasy to understand by all parties client, design team members, contractor, subcontractors and users, if necessary!Comparisons between projects and between elements can be made rapidly, and each element can be adjusted individually.Elemental cost plans allow the design team members to gain elemental costs and to ascertain the cost implications during the early stages of the project.

Disadvantagesrequire more time and effort in their preparation, but this investment should give better returns in aiding decision making.

Extensive cost databases are required to ensure accuracy of costs.High levels of ability and expertise are required if elements are to be properly evaluated and adjusted.

Approximate Quantities Method

most reliable technique not a single price estimating methodwell-developed design and detailed specification information for their accuracy, and for this reason can only be used in the Detailed Designneeded to measure reasonably accurate quantities for an element, or a group of elementsADJUSTMENTS FOR QUANTITY, QUALITY AND PRICE [Q, Q, P]

Quantity [Q]A difference in the floor area.Items in the analysed/published project, which will not be required in the new project.Items that are missing from the analysed building, but which will probably be needed in the proposed building.Significantly different requirements in the preliminaries and contingencies elements, for example, temporary access roads, difficult access and storage.Quality [Q]Difficult to identify with the information usually available at this early stage. The statement of quality in an initial brief is usually. So vague, in fact, that the relatively small differences in quality which remain after choosing the cost analysis/cost data cannot be allowed for until the next stage, Final Proposals or even later.Price [P]A difference between the date of tender/or publication of the analysed/published building and the date of this first estimate (price level).

COST PLANNING IN THE STRATEGIC BRIEFING STAGE A

Design teams are usually required to produce a first estimate at the Brief stage, That is, long before any drawings have been prepared or any specification has been decided. Clients expect to be able to make the decision to proceed or abandon the project at the end of the Strategic Briefing stage.Information Available at this Stage

Needs defined both emotional and physical.Concept description.Objectives of the project.Use to which the building is to be put (e.g. hotel, school, offices) and major functional relationships.Floor area required (to which additions may have to be made to allow for circulation areas, plant rooms, etc.).An indication of the quality required (e.g. prestige v. average v. low).Planning, environmental criteria.Initial cost/time criteria (if known).Basic details of the site.

Cost Planning the OutlineProposals Stage Cstage C is the third formal stagefirst step in the design stageOVERVIEW OF ACTIVITIES AND DOCUMENTATIONevaluate the strategic brief;assess the economic constraints;advise on project programme;implement design and cost management procedures in programme;participate in the development of the project (design) brief;advise on the cost effect of design and energy options;prepare initial cost plan;prepare initial cash flow projection;advise on procurement options.

Cost Planning the OutlineProposals Stage C - contd

ADDITIONAL INFORMATION AVAILABLE AT THE OUTLINE PROPOSALS STAGEdesign criteria;site information;environmental and design constraints;planning requirements for outline development control approval (if required);energy targets;programme planning requirements including work stage procedures;the development of the project brief with all the additional information that this document requires.

GROUP ELEMENTS

A cost target is prepared for each group of elements.

ALLOWANCES FOR CONTINGENCIES

Planning contingencyrisk of not being able to design the spatial relationships and achieve the desired functional area and travel/engineering allowances.

Design (risk) contingencyan allowance to cover the risk of the estimator/cost planner not adequately foreseeing the correct design or the complexity of the design.The amount of the Design Contingency will depend on the amount of detail available, and will be reduced to zero at Tender Document stage

Contract contingencyan allowance to cover the risk of variations and unforeseen items encountered during construction.

Project contingency.to cover delays and/or inflation, major changes required by the client or authorities, fee negotiations and similar.

Cost Planning theDetailed Proposals Stage D

The information availablethe project brief (probably not fully complete) from the Outline Proposals stage;the outline design (including drawings);the outline development control approval from the planning authority;the outline cost plan to group element level; andall the information created during and at the end of the Outline Proposals stage.

Cost Planning theDetailed Proposals Stage DThe important activitiesevaluate Outline Proposals to establish compliance with the developing brief;ensure in-principle compliance with statutory authorities and advise on cost effects of compliance;conduct further cost studies;prepare elemental cost plan and update progressively as more information becomes available;advise on project programme;participate in the completion and signing off of the project (design) brief;at end of stage confirm elemental cost plan;establish firm cash flow projection; andreview and update procurement advice taking account of more detailed project conditions.

The information available to prepare an elemental cost plan during this stage

complete project (or design) brief;outline cost plan in group elemental format (from previous stage);final and developed dimensioned sketch plans;elevations and sections of most parts of the project;structural sketches with dimensions of all main members indicated;preliminary schedule of finishes;site layout with disposition and site coverage of building(s), site treatment, location of utilities and landscaping; andspecification notes for critical elements.

Life Cycle Costing (LCC)the life cycle cost of an asset as the total cost of that asset over its operating life, including the initial acquisition costs and subsequent running costs, Flangan and Norman (1983) the life cycle cost of an asset as the present value of the total cost of the asset over its operating life including initial capital costs, occupational costs, operating costs and the cost or benefit of the eventual disposal of the asset at the end of its life. Hoar and Norman (1990)

Life cycle cost analysis (LCCA)is the collection and analysis of historic data on the actual costs of occupying comparable buildings, having regard to running costs and performance. This will assist quantity surveyors in preparing life cycle cost plans for construction projects.

Life cycle cost management (LCCM) derived from life cycle cost analysis identities those areas in which the costs of using the building as detailed by life cycle cost analysis can be reduced. assist clients to compare building costs in a meaningful way assessing and controlling occupancy costs throughout the life of a building to obtain the greatest value for the client.

Life cycle cost planning (LCCP) considered as part of life cycle cost management and constitutes the prediction of total costs of a building, part of a building or an individual building element, taking account of initial capital costs, subsequent running costs and residual values, if appropriate, and expressing these various costs in a consistent and comparable manner by applying discounting techniques. It also includes planning the timing of work and expenditure on the building, and should also take into account such factors as the effect of performance and quality. plan should be reasonably flexible and updated as necessary to encompass changing conditions, including n changes, particularly when formulating a full functional life plan.Terminology of Life Cycle Cost AnalysisInitial Expensesall costs incurred prior to occupation of the facility.Future Expenses all costs incurred after occupation of the facility.Residual Valueis the net worth of a building at the end of the LCCA study period. Unlike other future expenses, analternatives residual value can be positive or negative, a cost or a value.Zero residual value indicates that there is no value or cost associated with the building at the end of the study period. This rare instance occurs if the intended use of the building terminates concurrent to the end of the study period, the owner is unable to sell the building, and the owner is able to abandon the building at no expense.negative residual valueindicates that there is value associated with the building at the end of the study period. Perhaps, the value is a roof that was recently replaced or it is the buildings superstructure that could function for another thirty years. Whatever the reason for the remaining value, it is a tangible asset of building ownership and should be included in the LCCA.positive residual valueindicates that there are disposal costs associated with the building at the end of the study period. Perhaps, the costs are related to abatement of hazardous material or demolition of the structure. Whatever the cause, these are costs of building ownership and should be included in the LCCA.study periodis the period of time over which ownership and operations expenses are to be evaluated. Typically, the study period can range from twenty to forty years, depending on owners preferences, the stability of the users program, and the intended overall life of the facility. While the length of the study period is often a reflection of the intended life of a facility, the study period is usually shorter than the intended life of the facility.Real Discount Ratediscount ratethe rate of interest reflecting the investorstime value of money. Basically, it is the interest rate that would make an investor indifferent as towhether he received a payment now or a greater payment at some time in the future.Real Discount Ratereal discount rate excludes the rate of inflationnominal discount rate includes the rate of inflation.present value -the time equivalentvalue of past, present or future cash flows as of the beginning of the base year.constant-dollars dollars of uniform purchasing power tied to a reference year and exclusive of general price inflation or deflation.currentdollarsas dollars of nonuniform purchasing power, including general price inflation or deflation, in which actual prices are stated.To determinethe present value of future one-time costs the following formula is used:To determine the present value of future recurring costs the following formula is used:

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