Cost Studies Pp

7/28/2019 Cost Studies Pp

http://slidepdf.com/reader/full/cost-studies-pp 1/77

byUpali Fernando

MRICS,MCIOB,MAcostE,ACIArb,MASI,AIQS(SL)

(Chartered Quantity Surveyor, Cost Consultant, Independent Adjudicator and Charted Builder)

Managing Consultant

WANFERND CONSULTING

Construction Consultant Specialized in Quantity Surveying,Project Management and Claims and Contract Administration

http://www.wanferndconsulting.com

[email protected]

CONSTRUCTION COSTSTUDIES

http://www.wanferndconsulting.com/

http://www.wanferndconsulting.com/



CONSTRUCTION COST STUDIES

There is no clear cut definition for the term for overall Cost studies but it can be explained asall the techniques related to concept of cost

control such as cost study, cost advice, costplanning ,cost implications of design variables,functional requirements and cost implicationsof constructional methods, cost analysis ,cost

control ,value engineering etc. that have to beperformed by the Quantity surveyors/CostManagers in construction industry



In olden days the duties of a Quantity Surveyor were limited to:-

1) Measuring quantities or surveying

quantities for proposed constructionworks to arrive the value of the

proposedworks and

2) Measuring quantities or surveyingquantities to arrive the value of thecompleted works.



This scope has been extensively evolved andcurrently the Quantity Surveyor has toundertake not only the above conventional

Quantity Surveying works but to performoverall Cost Management role in theConstruction Industry.



Cost study can be simply explained as follows Breaking down the total cost of construction

with the following objectives:1) to reveal the distribution of costs among the

various parts of the construction

2) to relate the cost of any single part or element toits importance as a necessary part of the

whole

construction

Cost study



3) to compare the costs of the same part or elementin different construction

4) to consider whether costs could have beenapportioned to secure a better construction

5) to obtain and use cost data in planning future

construction6) to ensure a proper balance of quality and

quantitywithin appropriate cost



COST ADVICE (PRELIMINARY PROJCTESTIMATE/BUDGET)

The following methods are used to predict thecost of a proposed project



The Cube Method

This is the traditional method. All quantitysurveyors offices used to keep a “cube book”;when a contract was completed and amount of

the final tender was divided by the cubiccontent of the building & the resultant cost per cubic metre was entered in the book. When anestimate was required for a new project thecubic metreage would be calculated & anappropriate rate per metre taken from aprevious job in the cube book.



The cube method is unreliable unless two verysimilar buildings are being compared. Eventhen there are grave dangers, as shown in the

following example concerning two factories “A”& “B”.as per the following figures



5m

6m

30m

30m 36m 36m

FIG. 2 Factories “A” & “B”



Factory “A” cost Rs.24,000,000/= & anestimate is required for factory “B” which is of similar design & construction but slightly

larger. The cube of the first factory is 30m ×30m × 5m = 4,500m 3, which when divided intothe cost of Rs.24,000,000 gives a rate of Rs.5333.33 per cubic metre. The comparableestimate for factory “B” using the same ratewould be,



36m × 36m × 6m = 7,776m 3 × Rs.5333.33 =Rs.41,469,408 This is 72.79% more than thecost of factory “A”, but a quick inspection

shows that the areas of floor & roof have onlyincreased from 900 to 1296m2 and that thearea of external walls has increased from120m × 5m = 600m 2 to 144m × 6m = 864m 2; inboth cases an increase of 44%.



As the building cost will be proportionate to thequantities of the floor, roofs & supports & walls(there are no other major components in this

simple factory) it follows that factory “B” willcost Rs.24,000,000 plus 44%, that isRs.34,560,000/=; & therefore the estimate of Rs.41,.469,000/= obtained by using the cuberate of Rs.5333.33 will be badly wrong. In factthe correct cube rate would be Rs.4444.44(Rs.34,560,000÷ 7,776m 3 )



Factory „A cost Rs. 24,000,000.00;superficai area900m2 ie Rs.26667/m2Factory „B superficial area 1296m2@26667/m2 ie Rs34,560,432.00. That is 44% increase.In the case of the office block the superficial areamethod would have allowed for the additional floor.Seven-storey building 7X750m2 = 5250m25250m2@ 57142 = Rs.300,000,000.00Eight-storey building 8x750 =6000m26000m2@57142 =Rs.342,852,000.00



This method has slightly over-valued theadditional floor; the increase in cost will not beas high as the direct proportion of the floor

area because some items of cost will hardly beaffected, for example the area of the externalwalls has not altered. Nevertheless it has donemuch better than the cube method.



Storey Enclosure Method

In this method the areas of the various floors,roofs & the containing walls are measured,each is weighted by a different percentage &

the resultant figures totalled to give the storey-enclosure area. The rules are briefly statedhere in order to work out an example:



1) Twice the area of the lowest floor.2) The area of the roof measured on the plan.3) Twice the area of the upper floors, plus an

addition of 15% for the first floor, 30% for thesecond floor, 45% for the third & so on.

4) Area of external walls.



As we have seen previously this is the correctanswer.

Let us now tackle the office block, noting thatunlike either of the previous methods this willallow both for the additional floor &for theunchanged external wall area. It also makesan allowance for the extra cost of highbuilding.



Elemental Estimating

This basically is the “elemental” approach,whereby the building is split up it to a number of major components, or elements, which canbe easily measured from sketch drawings &which are priced separately; these elementalcosts are added together to give the total of the estimate. It is therefore possible tocompare the working drawings with theestimate by considering each element in turninstead of only being able to compare thewhole building, & the cost can be watched asthe design develops.



Generally for all above methodsUpdating Predetermined Information

Whatever above method used when arrivingpreliminary project estimates the QuantitySurveyor has to modify his predetermined dataconsidering the following.



1. Market conditions2. Size, number of storeys, etc.

3. Specification level4. Inclusions & exclusions5. Services6. Site & foundation conditions7. Other factors



1. Market conditions

This adjustment deals with the changes inbuilding prices & in tendering conditionsbetween the time when the previous job was

priced & the anticipated date of tender for thenew project.Further the duration of the proposed project

There are various published indices of building costs which will help the surveyor tocalculate the right allowance, & we will dealwith these first.



2. Size, number of storeys, etc.

The new provincial block will have a larger plan area; this will tend to reduce theproportion of external wall area to floor area(assuming a similar plan shape) & henceshould reduce the cost per square meter alittle.



3. Specification level

The specifications will be roughly similar, butthe architect has decided that the cheapflooring used in the officers on the proposed

project was a mistake & wants to allow anextra Rs.225 per m 2 for this. The client alsowants Portland stone facing instead of caststone used on the previous job.



4. Inclusions or exclusions

The client wants the office tenants to do their own partitioning & decorations, whereas on

the previous job these were provided by thebuilding owner.



5. Services

Services are the major part of a modernbuilding, & represent a large proportion of thecost. On a project of any size there will most

likely be consulting engineers for heating,plumbing & electrical work, & they will normallyprovide an estimate of the cost of the servicesfor which they are responsible.



6. Site & foundation conditions

Both sites are in congested city areas. Thenew provincial job will probably required pilefoundations, which must be allowed for. Either

the cost of pile foundations per square metrecan be obtained from a suitable analysis.



Cost Planning

A method of controlling the cost (price to client)of a project within a pre-determined sum up tothe Final

Account.



It attempts to measure and value the cost of work after/while it is designed and before it isexecuted (built).

Is a process of pre-costing the design proposalwhich attempts to represent the total picture of anticipated costs in a way which provides aclear statement of issues and isolated thecourses of action and their relative cost, so asto provide a guide to decision making.



Cost planning aims at ascertaining costsbefore many of the decisions are maderelating to the design of a construction. It

provides a statement of the main issues,clarifies the various courses of action,determines the cost implications of eachcourse and provides a comprehensiveeconomic picture of the whole.



Cost planning also can be explained as asystematic application of cost criteria to thedesign process, so as to maintain in the first

place a sensible and economic relationbetween cost, quality, utility and appearance,and in the second place, such overall controlof proposed expenditure as circumstancesmight dictate.



Glossary of terms commonly used incost planning

Cost planThe document that states how much is to bespent oneach functional element of a proposedconstruction in relation to defined standard of space and qualityElement Its full title is Functional Element ,but is now more

commonly known as an Element .The RICSdescribe it as a component that fulfils a specificfunction or functions irrespective of its design,specification or construction.Example. substructure, external walls, roof, roof,upper floors etc.



Cost analysis The systematic breakdown of cost data, oftenon the basis of elements, to assist in

estimating the cost and in the cost planning of future projects.Cost checking

The process carried out by the cost planner during the Final Proposals and ProductionInformation stages to ensure that neither theelemental cost targets nor the overall cost limit

is exceeded



Cost limit The total projected cost of the project in thecost plan. It is the sum of all the elemental cost

targets . Cost targets

An allowance included in the cost plan for

each element .



Cost in useInvestigating the total costs of a constructionprojects-initial capital cost and maintaining and

running costs throughout the predicted life of the construction .



Life cycle cost (LCC)

1) Initial Cost(C)Land acquisition costConstruction cost

2) Energy and water cost(E)Energy usageEnergy pricesWater cost

3) Operational, maintenance and repair cost(M)4) Replacement Cost(R)

5) Resale value (S)6) Social cost (Non-monitory benefits)

LCC=C+M+E+R-S



Cost Benefit Analysis

Cost benefit analysis is a another technique of project appraisal using discounting techniques toaid the evaluation and selection of a project. Theappraisal of project using Cost Benefit Analysis isbased on a time profile of cost and benefits for theparties affected by the project. It has beendeveloped to deal with public sector types of project where there is no commercial return.

Ex. The construction of a road, bring many profitto the community. This benefit may include timesaving, operating cost saving and accidentalsaving.



Cost control

The term embracing all methods of controllingthe cost of a construction from inception (ieCost Benefit Analysis)stage through to the

completion and preparation of final account,handover and into occupation of the buildingthrough life cycle costing and facilitiesmanagement.

Accordingly, overall discussion on CostControlling will be held under separatesession.



Purposes of cost planning

Ensure that employers are provided with valuefor moneyMake employers and designers aware of the

cost sequences of their proposalsProvide advice to designers that enable themto arrive at practical and balanced designswithin budget

Integrate costs with time and qualityTo keep expenditure within the amount, or limit, allowed by the employer



Elemental cost planning

The cost limit for the construction will bedetermine either by the client or by the jointaction of the designer and quantity surveyor for the project. Approximate estimates arelargely based on the known costs of similar or comparable projects.



It is often considered good policy to breakdown the estimate over the building elements,as in this way the designer will be aware of how much he can spend on a particular element before he settles his design andspecification .The elemental costs aregenerally expressed as the cost per squaremetre of floor area and constitute ,in effect , apreliminary cost plan .This procedure avoidsthe possibility of the designer incorporating anexpensive feature in his design which thetarget cost cannot possibly accommodate.



Comparative cost plan

The comparative cost planning method doesnot seek to enforce rigid cost targets for particular elements, but rather to maintain

maintain flexibility of choose of a combinationof possible design solution, that will serve thepurpose to be achieved. It is more concernedwith the comparison of alternative possibilitieswithin a cost limit, rather than attempting tocontrol the design element cost target.



This enables the designer ,within his costterms of reference ,to use the money to thebest advantage in interpreting his design.

But in both methods use the same recognisedelements as stipulated in the RICS currentformats.



Cost control

Cost control has been defined as „thecontrolling measures necessary to ensure thatthe authorized cost of the project is notexceeded . Initially, the „authorized cost is thecontract price but at subsequent times in theconstruction period, it will need to be adjustedto take account of necessary savings and of additional costs which the Employer is willingand able to meetThe „controlling measures are usually in thehands of the Employers QS and hisprofessional team



The contractor s QS/Professional teamlikewise is unlikely to have any direct control of the cost of construction but is in the position of

monitoring cost and expenditure and advisingthe Contractor on such matters as the value of work done to date and the likely eventual totalvalue of the contract



The Contractor s QS will be concerned withthe relationship between the contractor sexpenditure on the construction work and the

total of payments received or anticipated fromthe Employer.



While the payments are in excess of theexpenditure, there is a profit. If in any part of the work, however, the contractor s costs

exceed the amounts payable under thecontract terms, there will exist a loss situation,at least so far at that section of the work isconcerned.



The contractor s QS will be expected to beable to explain why this situation has arisenand may even be expected to foresee a

potential loss-making position developing andto warn the Contractor and so that he maytake what steps are necessary to minimize or reverse the loss.



Such a position may arise from any one or more of the following causes :

a) Inefficient deployment of resources(labour, plant, and materials);

b) Excessive wastage of theft of materials;

c) Plant being allowed to stand idle or under-utilized;



d) Adverse weather or working conditions;

e) Delays arising from one or more of variety

of causes;

f) Under-pricing of tender documents byassumptions in regard to labour times, types

andsizes of plant, etc., which do not equate with

the



Cost control from the viewpoint of the Contractor sQS, therefore, is distinct from that of theEmployers QS.

Although the concern of both of them centersaround the total value of a project, the former isconcerned with the relationship between thecontractor s expenditure and payments to him by

the Employer, while the latter is concerned withthe relationship between the total amount that theEmployer is willing and able to spend and the totalsum that he is liable to pay under the terms of the

contract.

MONITORING AND REPORTING ON THE



MONITORING AND REPORTING ON THEFINANCIAL POSITION

The Employer will need to be kept informed by theEmployer s QS financial position of the contract. This is so that he will be able to be make thenecessary arrangements to have the financeavailable to pay the Contractor within thestipulated time upon presentation of interimcertificates and also so that he may be warned of any possibility or likelihood of the „authorized costof the project being exceeded. He may then takesteps, as considered appropriate, to increase hisborrowing capacity or to affect savings on theproject to ensure that the final cost is within hisbudget limit.



There are thus two aspects to financialreports:

a) The current position

and

b) The likely total cost.



In order to carry out his duties adequately, theConsultant QS will have to take account of allthe actual or likely causes of adjustment to the

contract sum (as far as he is able to do so), asfollows:



a) Expenditure of provisional sums;

b) Variations;

c) Claims;

d) Recoverable fluctuations in costs andpredicts the anticipated final value.



The Contractor s QS will be involved inpreparing similar financial reports for theContractor. His reports will, of course, be

similar in most respects to those prepared bythe Employers QS. Where the Contractor s QSis predicts the anticipated final value as well asfinal cost.

FORECASTING CLIENT’S CAPITAL



EXPENDITURE FLOW

If a contract is large with a cost of millions tobe expended over several years, it is essentialto make a reasonably reliable forecast of the

likely flow of expenditure



Even where costs are more modest, andcontract time correspondingly shorter, it is to aclient s advantage to be able to anticipate his

cash flow requirement and to be able toarrange for finance to be available accordingly.



Using bill rates and prices (or schedule ratesand prices, if there is no bill), each section of the work is valued, the totals being broken

down into monthly amounts over the periodallocated to each section, as shown in Figure A.

CONTRACT PROGRAMME CHART



Operation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Site clearance 3,685 2,000 5,68

Excavation 2,432 4,325 5,141 3,458 3,271 6,916 6,586

Piling Nom. S/C. 5,400 5,400 2,205 13,

Mains services connections 756 567 945 2

Drainage 3,458 3,551 1,962 1,683 1,683 1,870 934 863

Concrete work 843 3,728 4,738 4,739 1,789 3,911 4,673 5,609 5,981 5,047 5,178 4,234 5,538

Asphalt tanking & roofing. 1,440 3,420 6,786 3,654 2,160

Brick work & block work 1,870 7,477 5,981 5,648 5,567 6,543 3,681 7,989 1,928

Wood work 2,992 1,940 3,668 5,609 3,739 5,700 5,449 7,041 7,225 8,075 5,690 5,152 1,222

Metal work 371 2,405 1,388 1,388 1,747 1,026 925 483 Plumbing & heating 1,589 2,702 3,176 2,061 3,176 4,255 2,535 2,589 3,969 5,558 1,167

Plastering & tiling 1,573 2,405 2,461 1,517 5,088 1,341 1,714 2,774 2,774 1,070

Lifts Nom. S/C. 10,800 9,000 9,000 5,400 2,790

Electrical work Nom. S/C. 1,800 7,236 7,560 2,430 3,384 3,179 3,863

Glazing 1,017 1,295 556 1,851 1,133 1,386 1,388

Painting & decorating 278 1,664 1,480 1,480 1,666 1,388 1,388 1,388 1,388 1,388 1,388 1,110 1,

Fencing 3,701 1,851 1,851 2,312 1,055 4,625 1,849 External paving 1,497 998 1,497 1,497 998 1,953

Provis ional s ums 137 138 137 138 137 138 137 138 137 138 137 138 137 138 137 138 137 138 1,

Preliminaries 2,730 3,580 3,251 2,012 1,727 1,722 1,792 1,910 1,282 1,865 1,724 1,190 1,452 1,869 1,889 1,734 2,010 2,8

Dayworks & contingencies 602 603 602 603 602 603 602 603 602 603 602 603 602 603 602 603 602 603

Totals 11,185 21,214 24,559 26,786 28,651 31,636 32,628 33,892 34,402 31,571 31,213 31,906 32,413 29,737 26,695 22,213 17,202 1



Notes: Adjustment for errors in bills of quantities distributed over monthly values.Day works and contingencies have been

included so that the total agrees with theContract Sum.



A graph plotted from such data is usuallyreferred to as an „S -curve graph because of the shape of the graph. It indicates a build-up

in the rate of the expenditure over the first twoor three months, an acceleration of the rateover the main part of the contract period and agradual run-down over the final three months

or so.



A graph produced of course, indicateanticipated cumulative monthly total values of work done and not a forecast rate of client s

expenditure. The difference between the two isthe amount of retention ,materials on site,fluctuation and advance payments (if any).The adjusted amounts may then be plotted to

give an S-curve showing expected rate of expenditure by the client.



There is an alternative method of producingsuch a graph. If the totals of interim valuationsfor a number of contracts are plotted and

curves of „best fit are drawn an S -curve of approximately the same shape will result for each contract.



It follows, therefore, that it is possible, within agiven range of cost and over a limited range of contract times, to produce a „standard S -curve

which can be used to predict expenditure flowsfor further contracts without the need to gothrough the detailed procedure describedabove.

Some organizations arriving this „S curveusing formula methods.



There are plenty of computer soft-ware nowavailable to achieve this „S curve and tomodify monthly.

S curve



S curve

0

50

100

150

200

250

300

350

400

450

500

0 2 4 6 8 10 12 14 16 18 20

C o n

t r a c

t v a l u e

Figure B : S-curve of anticipated and actual expenditure

Actual expenditure

Anticipated expenditure

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