Cost management 3 notes PDF

Preview

Summary

cost management 3 notes
...

Description

Cost Management 3 - Planning Notes Exam Format 

4 Questions o Question 1 = 40 marks (8 sub-questions)  Theory/concepts of cost planning  Format similar to class tests  Early part of semester. o Question 2 = 20 Marks (2 sub-questions, Calculation)  Week 4, 6-8, 11 o Question 3 = 20 marks (2 sub-questions – calculation and theory)  Week 11, BCI  Formula will be given o Question 4 = 20 marks (long calculation)  Lecture 5

Week 2: Introduction to Cost Planning Iron triangle of project management 

TIME COST QUALITY o As time increases generally costs increase. o A higher quality means more time required. o As cost increases greater quality should be attained.

Aims of Cost Planning      

Client Needs: Value for money clients. Make clients aware of cost implications for actions. Budget Constraints: help reach solutions within a suitable price. Integrate cost with time and quality. Ensure value for financial outlay. Keep costs within budget.

Cost Planning   

A systematic application of cost management to the design process engaged in by the “construction team” to establish and achieve PROJECT COST. A method of controlling the cost (price to client) of a project within a pre-determined sum up to the tender stage. Aims at filtering costs before many design decisions are made.

Difference between Planning and Estimating Estimating An estimate is a prediction to build a design. An estimate is an end product in itself and informs the client and the team of the probable cost of a course of action.

Cost Planning A cost plan is a statement of how the budget will be distributed in various elements. A flexible document that will change as design progresses. A cost plan is a frame of reference against which predicted costs can be compared. It is the basis for design within pre-established cost limits.

Difference between a cost plan and BQ

Purpose

Classification

Level of Measurement

Source of Information

BQ Provides project specific measured quantities of the items of work identified by the drawings and specifications in the tender documentation.  By trades  Australian Standard Method of Measurement.  Extensive and itemized list of each of the components or items.  Ensure the tender amount is close to the estimate in the cost plan.  Based on tender documentation drawings.  Design is complete and a specification has been prepared.

Cost Plan A system of cost planning and control which enables the cost of a scheme to be monitored during design development.  

By elements Australian Cost Management Manual.



Approximate quantities.

- Low level of details; project brief, preliminary drawings, depending on the different stages.

Who are the Clients?  

Government – federal, State, Local. Private Sector – Companies through to individuals, property investors, developers.

Costs of a project – Land, Labour, materials, plant, profit, finance, overheads, management skills, entrepreneurship. Factors affecting building Costs – Project size, project complexity, location (access, transport climate), nature of project (materials, processes), market conditions, exchange rates, different interpretation of documents, procurement method, contract conditions, resource availability, statutory requirements.

Design Decisions with Major cost Impacts        

Building shape and height. Materials and alternatives. Type of construction: timber, concrete etc. Available resources – human and material. Foundation systems. Structural alternatives. Cladding and finishes. Services.

Stages of a Construction Project 1. Inception/Briefing  Set up budget for client consideration or confirm that the clients budget is feasible.  Build up cost on functional and/or area basis.  Estimate is usually given as a lump sum. 2. Outline Proposal = First Cost Plan (by major elements)  To identify the best means of satisfying requirements of the client’s brief.  Budget setting and distributing.  Cost targets are prepared for each group of elements.  Establish comparative costs for several outline proposal in relation to size and type until the most effective solution is found.  An allowance is made for contingencies, escalation and contract adjustments. ACMM – Australian Cost Management Manual

3. Scheme and Detailed Design = Various Cost Plan  To ensure that the overall design is the most effective one available in terms of the approved requirements as expressed in the project brief.  Establish elemental cost targets.  Approximate quantities approach is adopted to measure the quantities for an element, or a group of elements.  Source of cost information e.g Rawlinsons.  At this stage, sketch design stage cost plan should specify what type of construction finishes, materials involved. 4. Documentation/Tender = Final Cost Plan  Before the preparation of tender document.  Each element must be cost checked as soon as its design is completed.  Elemental unit rate and quality are required to be shown.  Frequent communications between the members of design team is required.

Week 3: Forecasting Building Prices Cost and Value       

Input (Cost) – labour, materials, plant, sub-contractors, overheads. Output (Value) – location, market conditions, profit. Price v Cost Suppliers Price = Subcontractor’s cost Subcontractors price = contractors cost. Contractors price = developers cost. Developers price = owners cost.

What is cost data used for?    

Contract control and monitoring Estimation of future cost of a project. Balancing of costs in a cost plan to ensure that money has been spent in accordance with the client’s priorities. Negotiation of rates with a contractor.

Source of Cost Data 1. Price books o Includes rates for measured items, overall cost with approximate estimating, elemental analysis, materials price list. o Must consider: size and type of project, regional and site location, contract and market conditions, preliminaries, errors. 2. Priced Bill of Quantities. o Must consider: same as price books plus, availability of labour, standard of workmanship, financial conditions. o Advised to use average prices rather than lowest tender. o More BQ’s = more reliable data. 3. Other Sources o Specialist sub-contractors and consultants. E.g roofing, landscaping, engineering etc. o Adjustment may be required: main contractors profit, facilities to be provided by main contractor.

Building Cost Data    

Building cost per m2. Elemental Costs Comparative Costs (elemental breakdown). Detailed prices ( trade breakdown/priced BQ)

Building Cost Information System (BCIS)             

Developed by RICS in 1960’s. Based on detailed submissions from QS and builders from actual projects. Largest disseminator of construction cost information in the world. Provide statistical data for the standard regions and sub-regions in the UK. Information includes: Project analysis, selected projects summary, M & E services report, functional cost data, periodic report. Benefits: Interactive cost information. Overcoming duplicated effort by minimizing cost to single firms. More comprehensive & diverse cost information. Competitiveness of individual firm is maintained. Take full advantage of IT. Time delays in compilation of data are minimized through online access. Cost and other information for future research.

IT and the Construction Industry        

Important in developing cost modeling.. Providing infrastructure for data collection, analysis and storage. To speed up manual process. To compensate for human inadequacies. For rapid retrieval of cost data. Can be updated quickly and efficiently. To overcome problems with existing price storage systems. Bespoke cost data developed by individual companies, not readily shared.

Computer Application     

Data analysis Cost planning process Lifecycle costing Developer’s budget. Computer-aided design.

   

Measurement BQ preparation. Cost databases BIM

Building Indices     

Building Index – Statistical analysis of trends in construction cost or price. Purpose – to convert and compare cost and to measure changes. Building Cost Indices – Measure input prices to the contractor – labour plant, material. Building Price Indices – Measure trend of contractor’s pricing levels in accepted tenders. They measure changes in cost and price, not actual cost and price.

Building Cost Index (BCI)         

Measure contractor’s cost. Derived from cost changes of significant materials. Composed wages, materials, plant and overhead costs. Provides limited indication of cost trend. Used for evaluating cost fluctuations. Needs large balanced sample size. Time-consuming in preparation. Little or no account of the tendering market. Relies heavily on base year schedule.

Building Price Indices (BPI)        

Based on what the client is prepared to pay. Allows for market conditions & profits. Will include fluctuations in price Accounts for tendering market conditions. Facilities comparison of prices. Reveals relationship of various factors in the market. Requires large sample size. Base year is import.

How to Use cost Data? 

Updating Historical Cost Data

NEW RATE = historic rate x Current Index (CI) / Previous Index (PI) Measure percentage differences between periods: o % diff = (CI –PI)/PI x 100 = (168 -127)/127 x 100 = 31.50% Forcasting – estimate future cost, use linear regression, avoid individual judgement. Price Fluctuations – calculate the increased cost of construction under a fluctuation type contract. Comparison of cost relationships. Assessment of Market conditions. Pricing

o 

    

Forecasting Building Prices    

Prices all rates at current date. Escalate to tender date. Escalate to project completion date. Past Project Cost Data  Price at current  Escalate to tender date  Escalate to completion date.

Week 4: Estimating Methods for Cost Planning Estimate – a forecast during design stage of the probable cost of a future project in the design stages.

Budget Setting Techniques (DFSFSCAE) 1. Developer’s Budget/Development Appraisal Approach o Prepared for guiding the purchase value of a suitable site, prior to or during Briefing stage. o Most commonly used to determine the value of land and feasibility and compared with costs of development. o Expressed as V = L + B + F + P + M o V = Value, L = Land Costs, B = Building Costs, F = Finance, P = Profit, M = Marketing Costs. 2. Functional Unit Method o A very approximate, simple estimate used in briefing stage only. o Done by selecting standard functional unit, and multiplying by the project number of units. o Examples: Schools ($/student), hospitals ($/bed), offices ($/workstation) etc. o AQIS do not include usable floor area as part of definition. o Hard to make relevant and consistent for some buildings. o Adjustments required for site conditions, specification, market conditions etc. o Takes no account for buildings shape, size and height. 3. Superficial Method o Buildings gross floor area (GFA) is multiplied by a suitable rate per m2. o GFA = FECA + UCA o FECA = fully enclosed covered area. o UCA = Unenclosed Covered Area. o Adv – generally meaningful to all parties, quick and easy, most cost data expressed in m2. o Disadv – Difficult to make adjustments, published cost data may not be reliable. 4. Functional Area Method o A refinement of overall area into the component functional spaces. o Appropriate functional area to each functional area. o Greater flexibility & accuracy to cost budget procedures. o Takes no account in building shape, size and height, and significant time and effort required. o Requires reliable data: minimum 5 projects analyzed, continuous and consistent projects. 5. Storey Enclosure Method o Area of the Various floors and external walls were measured and each is weighted by a different factor obtained from previous analyzed projects to provide a total number of storey enclosure units. o Adopted single price rate method. o Incorporates the cost effect of design features. o Lack of reliable rate data, involves more calculation etc. 6. Cube Method o Single rate method of multiplying the length, width and height. 7. Approximate Quantities Method o Most reliable technique, which relies on well developed design & detailed specification information for their accuracy. o Can only be used in detailed design stages. o Adv. – can cleary identify any adjustments in alternate choices or specification. o Cost info readily available in price books and BQ. o Disadv. – Requires extra time and needs to be a developed design. 8. Elemental Method o Group  Requires the function and use of the proposed building e.g renovation, area or space, number of storeys, location etc. o Individual Elements



Requires suitable cost analyses and other cost data, use of approximate quantities and a range of ratio and other cost data adjustments. Advantages: Flexible and can be adapted to suit the level & complexity of information available, comparisions between projects can be made rapidly. Disadvantages – Require more time and effort, high level of ability and expertise required.

o o

Accuracy What Effects Accuracy  design economics  Quality Consideration  Cost data  Nature of Project  Size  Market Conditions

    

Improving Accuracy   

Proper design documentation and information management Effective communication and co-ordination. Check all assumptions.

External Works Engineering services Exclusions Risks Personal Factors

Week 5: Budgeting Costing a Design       

Purpose is to develop the most economic for of a given design. Client’s needs and requirements are first established. The role of the design team is to establish a realistic and affordable budget. The architect will decide on their initial and basic design concept but with little reference to economic factors. Does not investigate alternative design solutions. The task is largely estimating the cost of a project. Design must suit client requirements, form basis of initial costing and be affordable if not the first two elements must be revised.

Designing to a Cost    

A budget establishs the client with at the outset and to focus upon developing the most economic design. Architect and cost planner investigate the possibilities with exchange of detailed information. Different designs will be developed and the cost planner determines the likely cost of each Client will establish budget, design team develops design, if not in budget the first two elements must be revised.

Costing a Design Initial move comes from the architect with the cost planner involvement becomes a secondary agent. The aim can only be producing the most economic form of a chosen design situation. Working on only one scheme.

Designing to a Cost The architect and cost planner co-operate from the start of the project. The aim is to produce the most economic design solution without exceeding the budget – can be more than one solution. Requires more comparative cost information and greater effort from both parties.

Cost Planning Process 

  

Four stages: o Stage A – budget estimate based on brief. o Stage B – estimate based on outline proposals. o Stage C – estimate based on sketch design. o Stage D – estimate based on tender documentation. Depends on the level of details in the design. At least one cost plan will be prepared at each stage. Interim cost plans may also be required.

Stage A – Brief    

No drawings Site information available – size, location, access, ground conditions, existing buildings, contamination. Client stages requirements – ROI, GFA, NLA, carparking, quality. Stage A estimate – sets budget.

What is a Budget?     

Pre-determination of cost of a project. An initial budget for the client at the briefing stage. Based on the client’s brief, inspection of the site and the agreed quality standards. Acts as a control mechanism for further cost planning activities. Acts as a basis for regulating and reviewing the project cost.

Information Available   

Usually only basic details: function, accommodation, quality, site. Method: build cost on functional and/or area using known building costs from similar project. Outcome: current project cost + escalation to tender date.

Importance of initial Budget   

It establishes a cost limit for a project It helps to improve the process of design development. It ensures value for money.

Factors Affecting Initial Budget Estimates        

Market conditions Design economics Quality factors Engineering services External works Exclusions Price & design risk Estimating methods

Week 6&8: Elemental and Cost Planning Stage B – Outline Proposal    

Preliminary drawings Low level of detail May be more than one proposal Set cost targets for various elements based on large elements e.g substructure, superstructure and finishes.

What is an outline proposal cost plan?  The first structured cost plan.  Aims to confirm the budget set at the briefing stage.  Helps to develop the design to optimize the project objectives.  Aims to seek value for money by allocating cost targets against the group elements.  Elements will be divided into major elements only as insufficient detail for individual cost targets. Information Available:  Cost Plan from stage A (the working budget)  The expanded brief arising out of stage A.  Sketches e.g site plans, elevations.  Function of building confirmed  Standard of accommodation required.  Dimensioned outline of building.  Number of floors proposed.  Local planning requirements  Further information such as user requirements, site conditions, design approach and other studies.  Several schemes may have been developed for client consideration. Sources of Cost Information:  Cost Web – online data produced by Turner & Townsend  Rawlinsons section – ‘Estimating Elemental Costs of Buildings’.  The building Economists may also be used as source of up to date costs.  Note definitions of elements at start of section.  Each building type is broken down into group and individual elements.

Stage C – Sketch Design – Set Limit of Cost (Final Budget)        

Complete Brief Final proposal – plans, elevations etc. Structural sketches (slab thickness, reo) Dimensions Schedule of finishes Site layout Specification Usually Elemental format.

What is a sketch design cost plan?  The second structured cost plan.  Based on detailed sketch plans  Establish a cost limit for each element.  Initial budget must not be exceeded without major change of scope of works. Objectives  To ensure the most cost effective design.  To confirm or set the final budget.  To establish elemental cost benchmarks. Information Available

       

Project brief is completed Outline cost plan from previous stage Final dimensioned sketch plans, elevations and sections Structural sketches with dimensions of main members indicated. Schedule of proposed finishes. Site layout including contours, extent of roads, paths, landscaping, service mains, covered ways, fencing. Specification notes. All necessary approvals are obtained.

What is ‘Elemental Cost Planning’        

Dissection of costs into separate “elements” to aid cost control. Prepared during the outline propos...