BT 365 COST PLANNING AND CONTROL

Lecturer: J.K. Ofori-Kuragu

Course Objectives / Course Outline: At the end of this course, you will know: 1. What Cost Control is. 2. Purposes of Cost control. 3. Elements of Cost Control 4. The Introduction to Cost Control Systems. 5. Cost Analysis and Cost planning 6. Costs in Use 7. Introduction to Value Engineering Recommended Texts A. Ashworth Cost Studies of Buildings Ivor Seeley Building Economics 3rd edition upwards Douglas J. Ferry & Peter Brandon - Cost Planning of Buildings Any good book on Cost Planning/ Cost Control Any Books by any of these authors COST PLANNING This can be defined as controlling the cost of a project within a predetermined sum during the design stage. This involves preparing a cost plan and doing cost checks. COST CONTROL Seeley (1993) defines Cost Control as all methods of controlling the cost of building projects within the limits of a Predetermined Sum throughout the design and Construction stages. NB: Cost as used here refers to the cost to the client not the contractor. IMPORTANCE OF COST CONTROL 1. The need to complete building projects is becoming increasingly important to clients. Very few clients will tolerate delays arising from the need to redesign schemes when tenders are too high. 2. The needs of building clients are increasingly becoming more complex as a result of which estimation of probable costs is becoming more difficult. In turn, more effective systems of cost control are required for projects from inception up to the completion of the final account as well as controlling costs during the life cycle of the scheme. 3. Clients of the construction industry are becoming larger, more efficient and adopting more sophisticated techniques for forecasting and controlling costs. As a result, the Construction Industry requires professional advisors for building projects to demonstrate a high degree of efficiency and expertise in advising on costs.

September, 2006

4. The trend of modern designs, new construction techniques, new materials and new methods of construction give designers a wider choice of products. The result of this growing trend is a wider variety in construction products. Efforts to produce balanced designs and achieve value-for-money using traditional methods of estimating have severe limitations, which demonstrate the need for effective ways of controlling costs. 5. Existing estimating methods have sometimes not been adequate in giving estimated costs. When this happens, the project involved may receive a lot of adverse publicity. 6. In a bid to win more t6enders, most contractors may reduce their profit margins. With reduced profit margins, there is now a greater costconsciousness ton ensure that any possible losses are avoided through effective cost control. 7. The increasing emphasis on the elimination of waste in construction and the need to use the worlds diminishing resources judiciously calls for improved methods of forecasting and controlling the costs of construction. 8. The cost of capital for construction has become very high as a result of inflation and high interest rates. Coupled with a general shortage of investment capital for construction as a result of global economic trends and restrictions on the use of capital, these all make effective cost control very important. 9. The rising demand for integrated design that efficiently delivers both building and services elements in complex developments like hospitals, airports etc., require effective cost planning to ensure that the design solution delivers value-for-money. PURPOSE OF COST CONTROL 1. Limits the clients expenditure keeping it within the agreed amount. (means that the tender sum and final account should be approximately equal to the budget estimate). 2. Helps during the design stage to achieve a balance in the expenditures for the various elements of the proposed building. 3. Provides the client with value-for-money (ensures resources are used to the best advantage)- a building that is soundly constructed, which has satisfactory appearance and is well suited to perform the functions required as well as completed on time. HISTORICAL DEVELOPMENT OF COST CONTROL In the 18th century, there were no main contractors as they operate now. Instead, buildings were constructed by groups of tradesmen working for themselves. Measurers were employed to measure and value the cost of work both at the design stage and when they had been constructed. The measurers argued on behalf of the tradesmen with the client and architect. In the 19th century, the main contractor system was introduced. This introduced price competition before construction. This necessitated the need for skills in preconstruction measuring, taking-off quantities from drawings before construction was started. These quantities were assembled into the bill of Quantities which provided a rational basis for competition amongst contractors. This stage in the development of the quantity surveying profession meant that work was measured and priced after the design prior to execution.

In the next stage, approximate estimating techniques were introduced. These would help forecast a probable tender figure. Reasonably accurate probable costs can be determined early in the design process using cost planning techniques and cost analysis methods. With increasing complexity of building projects and the accompanying specialist skills required to design these presents a wide variety of alternative solutions. Most clients need the reassurance that their money is being spent well which underscores the need for the quantity surveyors role.; as the financial advisor to the construction industry, he is responsible for providing economically viable solutions to the many kinds of building development problems including controlling costs. Kenyon (1964) looks at the issue from the architects point of view and describes the new role required of quantity surveyors as being the encyclopedia of information on every aspect of building costs. The Quantity Surveyor, he says, must be fully informed of new methods of construction, new materials being introduced (e.g. Trassaco valleys Prefab Construction) and be able to advice on comparative costs. Planning for the building must go hand-in-hand with planning for costs. This requires the Quantity surveyor to work hand-in-hand with the architect. Fulcher (1980) observers a trend of a shift in emphasis towards cost consultancy and suggests that quantity surveyors be fully conversant with all relevant cost factors in addition to the provision of traditional quantity surveying services. DESIGN VARIABLES AFFECTING THE COSTS OF BUILDINGS The cost of a building may be influenced by several factors including the shape, size, storey heights and total height among other building characteristics. It is essential that quantity surveyors be fully aware of the effect on costs of changes in any of these factors. The unit commonly used in comparing the cost implications of alternative designs is the square metre of floor area measured between the main enclosing walls i.e. the inner faces of the walls. This method makes no deductions for staircases, lift shafts, internal walls or other circulation space. Costs may be expressed this way for either the whole or part of the building. In practice however, allowance has to be made when using this method for differing conditions on different projects and sites. For example, two similar buildings constructed on different sites with different soil conditions will have different foundation costs and thus different overall costs.

Effect of Plan Shape on Building Costs

Generally, simpler shapes cost less to build than more complex shapes. This is because the longer, narrower, more complicated or irregular a shape gets, the higher the perimeter/ floor area ratio gets and in effect the higher the unit cost. Then again, irregular outlines yield increased costs for other reasons such as increased setting out costs, increased costs for site works, drainage works which tend to be more complicated and thus more expensive. In the two figures above, both outlines have the same floor area. In Building 2 however, there is 6% more external wall which encloses the same floor area as the first Building. As a result, setting out costs are up to 50% higher in Building 2 than Building 1.Excavation costs in the 2nd is around 20% higher than the 1st. 2 metres of additional 100mm drain and 2 extra manholes required for the latter means up to 25% higher costs for drainage. Brickwork and roofing costs in Building 2 are also higher owing to the complicated design. Running costs arising from painting etc. may also be higher for Building 2. In practice however, cost control considerations have to be made in the light of practical and functional aspects of the building like daylighting requirements as well as aesthetics. There is the Quantity Surveyor needs to be able to maintain balance between cost savings, function and appearance. Cost saving alternatives should function satisfactorily and be aesthetically desirable.

Effect of Size of Building on Cost Increasing the size of buildings generally lead to a reduction of unit costs, e.g. cost per square metre of floor area. This is because the costs of transportation, erecting or dismantling site buildings, material storage, water supply to site, temporary roads etc. may be fixed and would not change considerably even if the size of the project is increased. In larger projects also, the wall/floor ratios are reduced. Rooms may be larger with less need for internal partitions, skirting and decorations yielding overall cost savings. In high-rise buildings, lifts serve a larger floor area and a larger number of occupants which gives a cost advantage. Effect of Perimeter / Floor Area Ratio on Cost The wall to floor area ratio gives an indication of the planning efficiency of buildings. This is calculated by dividing the external wall area (including of windows and doors) by the gross floor area. This ratio can be used to compare different plans. In general, the lower the wall / floor ratio, the more economical a design proposal is. Circular buildings give the best wall to floor ratios but then the cost of circular work compared to that in straight walls offsets any savings due to the lower wall to floor ratio. In the two building plan shapes below, both buildings have an identical floor area of 244m sq. If both buildings are each of two storeys, then the total floor area is 488m sq. for each building. Lengths of enclosing wall: For Building A = 70m For building B = 100m (an increase of 43%) If the total height of the wall is 6m, Then the Areas of Enclosing Walls are: For Building A = 70 x 6 = 420 m sq For Building B = 100 x 6= 600m sq Wall Floor Ratios For Building A = 420 488 = 0.86 For Building B = 600 488 = 1.23 Conclusion Building B is very uneconomical as it has got a much greater area of enclosing walls than Building A.

(Please insert dimensions on drawings manually)

EFFECT OF CIRCULATION SPACE ON COST Entrance halls in buildings, passages, corridors, stairways and lift wells are generally described as Circulation Space otherwise described as dead space. These may be very expensive to maintain e.g cleaning, heating, cooling, decorating costs. They however do not serve profitable purposes apart from providing means of access between different parts of the building. Spacious entrances and corridors may also add to the glamour and impressiveness of prestige buildings. To ensure economy in designs, it is important to reduce circulation to the barest minimum that ensures that the building functions satisfactorily. Cost however should not be the only consideration. Aesthetic and functional qualities should also be considered. E.g. the fire escape functions of corridors. Circulations ratios are defined as the proportion of Circulation Space to the Gross Floor Area. EFFECT OF STOREY HEIGHTS ON BUILDING COSTS Although variations in storey heights do not change the floor area, they alter the cost of buildings. The major elements of a building affected by changes in storey height are walls and partitions and their related finishings and decorations. Other possible changes arising variations in storey height include: i. An increase in the volume to be heated / cooled which would require larger heat / cooling sources and increased pipework or cables. ii. Longer service pipes and waste pipes to sanitary appliances. iii. Costs to hoist roof members into place may increase. iv. Staircases and lifts (where available) will cost more to build. v. Ceiling finishings and decorations may cost more to apply. vi. In some cases, substantial increases in storey height may result in increased foundation costs to support the additional load. Generally, it must be noted that when there are variations in storey height of a building, the Cube Method of Approximate estimating is difficult to operate. EFFECT OF TOTAL HEIGHT OF BUILDINGS ON COST Increasing heights of buildings result in increased construction costs. In practice however, the extra costs due to the increased height may be offset in part by the better utilization of expensive land as well as a reduction of external circulation works. Generally, in the development of private blocks of flats, it is cheaper to keep heights low. However, in cases where the costs of acquiring the site are very high and there is a potential for luxury rents, high rise private blocks may be advisable. Similarly, whilst tower block offices tend to be more expensive than low rise buildings, yet if the tower has around 1000m sq on each floor, the rents potential rent can offset the additional costs.

BT 365 COST PLANNING AND CONTROL LECTURE 2

SEPT 2006

EFFECT OF CIRCULATION SPACE ON COST Entrance halls in buildings, passages, corridors, stairways and lift wells are generally described as Circulation Space otherwise described as dead space. These may be very expensive to maintain e.g. cleaning, heating, cooling, decorating costs. They however do not serve profitable purposes apart from providing means of access between different parts of the building. Spacious entrances and corridors may also add to the glamour and impressiveness of prestige buildings. To ensure economy in designs, it is important to reduce circulation to the barest minimum that ensures that the building functions satisfactorily. Cost however should not be the only consideration. Aesthetic and functional qualities should also be considered. E.g. the fire escape functions of corridors. Circulations ratios are defined as the proportion of Circulation Space to the Gross Floor Area. EFFECT OF STOREY HEIGHTS ON BUILDING COSTS Although variations in storey heights do not change the floor area, they alter the cost of buildings. The major elements of a building affected by changes in storey height are walls and partitions and their related finishings and decorations. Other possible changes arising variations in storey height include: vii. An increase in the volume to be heated / cooled which would require larger heat / cooling sources and increased pipework or cables. viii. Longer service pipes and waste pipes to sanitary appliances. ix. Costs to hoist roof members into place may increase. x. Staircases and lifts (where available) will cost more to build. xi. Ceiling finishings and decorations may cost more to apply. xii. In some cases, substantial increases in storey height may result in increased foundation costs to support the additional load. Generally, it must be noted that when there are variations in storey height of a building, the Cube Method of Approximate estimating is difficult to operate. EFFECT OF TOTAL HEIGHT OF BUILDINGS ON COST Increasing heights of buildings result in increased construction costs. In practice however, the extra costs due to the increased height may be offset in part by the better utilization of expensive land as well as a reduction of external circulation works. Generally, in the development of private blocks of flats, it is cheaper to keep heights low. However, in cases where the costs of acquiring the site are very high and there is a potential for luxury rents, high rise private blocks may be advisable. Similarly, whilst tower block offices tend to be more expensive than low rise buildings, yet if the tower has around 1000m sq on each floor, the rents potential rent can offset the additional costs.

APPROXIMATE ESTIMATING Also known as preliminary estimating, approximate estimating is used to produce a forecast of the probable cost of a future project before the building has been designed in detail. This helps the building client to get a fair idea of the likely financial commitments even before extensive design work is done. Quantity Surveyors use approximate estimating methods to help provide cost assessments and give advice on design proposals as well as variations to the design. Thus they are able to provide more economic alternative solutions. The accuracy of approximate estimates depends however on the quality of information on which it is based. This can be achieved with effective communication and full co-operation between the architect, the quantity surveyor and the building client right from the inception of the project. In most cases, it is the first figure that the client will always remember. It is therefore important to ensure that as information as possible is available to give a reliable preliminary estimate. It is also essential that the quantity surveyor surveys the site to be sure of the site conditions such as ground water level, load bearing capacity of the soil, obstructions on the site etc., all of which can significantly affect costs. Approximate Estimating Methods Different methods may be used to find approximate estimates depending on the clients expectations and the information available. The methods commonly used include the Unit method, Cube method, superficial or Floor area Method. Unit Method In this method, costs are allocated to each accommodation unit of a building e.g. persons, seats, beds, car spaces etc. To find the total cost, the total number of units is multiplied by the unit rate. Unit rates may be derived by analyzing a number of fairly recently completed buildings of the same type. Allowance has to be made though for any variations in site conditions, price changes since the completion of the scheme, variations in design materials and methods of construction. Variations arising from changes in design and construction methods can be difficult to assess. Thus a major disadvantage of this method is the lack of precision. It is suggested therefore that costs be given in ranges so that more precise costs can be determined at a later stage when much more detailed information is available. Example (Fictional figures) Hospital wards 10,500,000 per bed University Lecture Hall - 5,000,000 per seat Cube Method The cubic content of a building is obtained y multiplying the length, width and height (external dimensions) of each part of the building. The method used to determine the height of the building depends on the type of roof and whether or not the roof is occupied.

For a normal building with unoccupied pitched roof, the height is taken from the top of the concrete foundation to the mid point between the intersection of the wall and the roof (i.e. half the height of the roof). If the roof space is to be occupied, the height is measured three-quarters of the way up the roof slope. In the case of flat roofs, the height is taken 600 mm above roof level. However if the flat roof is surrounded by a parapet wall which has a height exceeding 600m, then the height is measured to the top of the parapet wall. Projections like porches, steps, bays, dormers, projecting roof lights, chimney stacks, tank compartments etc are measured and added to the cubic content of the main building Illustration of Cube Method Consider a block of 5 unit factories made up workshops and offices as shown below

Insert Drawing of Factory block in Elevation

Calculations Assume cube rates as follows: Office @1,200,000 cedis per metre cube Factory @ 750,000 cedis per metre cube Effective height = 500 + 4.000
Top of G.L to roof

(2)
Roof (unoccupied)

(Top of fdn to G.L)

= 5.500 m Volume of workshops = 50 x 20 x 5.5 = 5500 metre cube Volume of offices = 50 x 5 x 5.5 = 1375 metre cube = 5500@750,000 = 4,125,000,000 1375@1,200,000 = 1,650,000,000 5,775,000,000 cedis

Estimated cost of block

SUPERFICIAL METHOD (FLOOR AREA METHOD) This is a popular method of approximate estimating. Most data are expressed in this form. In this method, the floor area of the building on all floors is measured between the internal faces of the enclosing walls. No deductions are made for internal walls, partitions, stairs, landings, lift shafts and passages. A unit rate is calculated per square metre of floor area. The probable cost of the building is obtained by multiplying the total floor area by the calculated unit rate. NB. 1. In practice, if the constructional methods or the quality of finish used varies considerably for different parts of the building, it will help to separate floor areas so that different unit rates can be applied to different parts of the building. 2. When assessing unit rates or extracting rates from cost analysis, consideration should be given to any variations in storey heights. Example:

COST CONTROL DURING CONSTRUCTION Apart from the design stage, Costs need to be controlled at all stages of construction if the scheme has to be completed within the clients budget. Having developed a cost plan at the design stage, it is essential that costs are monitored through out construction to ensure that the scheme is done within budget. Elements of Cost Control The main elements in any cost control system are: 1. Measure progress. 2. Calculate the budget allowance up to that stage of work. 3. Compare the budget allowance with actual costs. 4. Take corrective action. Harris and McCaffer (2001) compare controlling costs to the domestic thermostat which switches off when a system overheats. They argue that the system should help to identify where corrective action is necessary and provide pointers to what that action should be. They however point out the long response times that cost control systems take to respond to any problems identified. This is because even the best cost control system provides information on what was happening last week or last month (Harris and McCaffer 2001). COST CONTROL SYSTEMS The cost control system used depends on a number of factors such as: 1. The size of the contract. 2. Complexity of the contract. 3. The attitudes of the management staff. 4. The level of sophistication of top management. Some of the cost control systems used are: 1. The overall profit or loss method. 2. Profit or loss on the contract at valuation dates. 3. Unit costing 4. Standard costing systems. 5. PERT (Performance Evaluation and review technique.

References Seeley, Ivor Kenyon, A W Harris, F & McCaffer R Asworth, A Ferry J D & Brandon P S

Building Economics

Macmillan

Basignstoke 1993

An Architects thoughts on the profession of quantity surveying The Quantity Surveyor (July / August 1964) Modern Construction Management EPP Books, Accra 2005 Cost Studies of Buildings Cost Planning of Buildings Longman, Harlow 1994 BPS Books, Oxford 1994