Study of Residential Project Cost Control Based On Value Engineering

Zhang TieShan
Professor. School of Economic and Management North China University of Technology Beijing, China
AbstractThis paper analyzed the existing problems and trends of residential project cost control, and discussed the advantages of using value engineering method in cost control. Then author proposed the issues needing to pay attention of value engineering applied to the residential project cost control, uniquely from three angles of application time, the choice of breakthrough points and application process. The purpose of this paper is to use value engineering in residential project cost control, for lower cost and improving the function and value of the residential project. Keywords-Value engineering Cost control Residential project

Song Hui, Yan XiaoJuan, Ma Lie

Dept. Management. School of Economic and Management North China University of Technology Beijing, China

enterprises could maintain long-term competitive advantage in the competition. How to control cost scientifically and effectively for residential project, to reduce costs and improve function and value become the issues which the enterprises are very concerned about. II. THE EXISTING PROBLEMS AND DEVELOPMENT TREND OF
COST CONTROL FOR RESIDENTIAL PROJECT

I.

INTRODUCTION

The real estate industry has the pivotal position in the modern economic life. In recent years, real estate industry of our country has developed rapidly, especially the residence construction. Development and construction of residential project has become new economic growth and consumption point. Its position was more and more important. According to the National Bureau of Statistics, the data showed that the national real estate investment was 3.6232 trillion Yuan in 2009, 16.1% increase over the previous year. The commercial residential investment was 2.5619 trillion Yuan, increased by 14.2% than last year, accounted for 70.7% of the total investment. In 2010, from January to October, the commercial residential investment was 2.6683 trillion Yuan, an increase of 33.8%, accounted for 70.1% of the total investment. Therefore, residential project is one of important factors to promote national and regional economic and social development. Cost control has been the important research subject in academic theory. Scholars put forward a lot of methods about the cost control after a great deal of research. However, these mature methods of cost control are based on many common products of general enterprises. For the real estate enterprises, the development of residential project is professional, so using the general method of cost control cannot play the role as expected. The real estate is capital-intensive industry, for large investment and high risk. And with the expansion of the development scale, the increase or decrease effect in cost management is further enlarged. So, in the increasingly aggressive competition of the market, if the enterprise cannot effectively control cost, it has been difficult to ensure that the
The project of student scientific research and undertaking activity plan in Beijing: research results of value engineering applied in cost control of real estate enterprise)

Cost control for residential project, means that in various phases of the construction, we take certain methods and measures to guide and supervise the cost of residential project. Also we control the cost of the residential project at a reasonable range, and manner to correct deviations in time to ensure the cost management goals. Cost control for residential project has the characteristics of long development cycle, many influencing factors and elements of uncertainty, high requirements for quality of personnel, and difficult division of responsibilities. A. The existing problems of cost control for residential project In general, the residential project cost is actual expenses or investment in the production process. However, the maintenance starts after the completion of construction. This phase will produce a series of cost for using and operating, and due to different options or mistakes that caused by various reasons in early phase of design and construction, the costs increase is great , even more than the construction cost. So the life cycle cost theory has been proposed. That the cost of residential project should include the concept of residential project, the construction and completed process, putting into use and the end of residential project. The sum of all the expenses in the whole process of life covers the construction cost and the cost for using. This makes the traditional cost control mode and method cannot satisfy the requirements of modern cost control for residential project. It is showed in the following aspects: 1) Lack of systematic cost concept Traditional cost control for residential project one-sidedly requires reducing cost through avoiding the occurrence of certain expenses and puts emphasis on saving. While reducing the cost, they did not take into account other goals, such as plan,

___________________________________ 978-1-61284-109-0/11/$26.00 2011 IEEE



progress, function, quality and safety of the residential project. It is superficially seemed that the cost of the residential project is reduced, but actually it's local and short-term cost reduction. More than that, because of just one-sided pursuit of low cost, you will ignore that it may lead to low quality and function or any other problems like this, even causing a greater loss. 2) Lack of timeliness and foresightedness In modern times, project management tends to real-time and forward-looking management and gives emphasis to problem finding and solving in time. But the present control system is more of a summary control, which is finding and solving problem only after they occur. It cannot reflect the most important aspects of target cost management--process control. So even we take some measures to control the cost, the loss has been already happening. 3) Lack of perfect systematic research Traditional cost control for residential project is usually for a single cost method, lacking research of the links between the different methods, so it cannot form a system of cost control methodology. In addition, it is short of systematic cost control management at each stage of the project .For example, some only pay attention to cost savings not the quality and progress; some just simply control costs while ignoring the corporate brand. These phenomena suggest that cost control system is very weak. 4) Ignore the dynamic management Complexity, mobility and other characteristics of the residential projects determine the dynamic change in the cost. Static methods did not reflect the dynamic trend of future development in time, therefore they were not able to provide decision-making basis timely and residential. In addition, life cycle cost theory makes us to see every stage as a whole, and not limited to partial or some stage but the whole life cycle costs. B. The development trends of residential project cost control From research, construction to the final operation residential construction is a complicated systematic project with the characters of many participants, covering complicated factors, fast environmental change and high risk. If not effectively controlled, it will generate a lot of invalid costs. Cost control is important for real estate enterprises to improve operational efficiency, reduce cost, achieve higher economic efficiency, and provide the community with residential products at competitive prices. However, cost control for residential project alone is meaningless, which requires us to take all kinds of measures from the aspects of organization, economy, technology, and contract and others. When considering reducing the cost of residential project, we dont simply just think about the cost, but take into account function, quality and other goals. Therefore, the development trend of cost control for residential project should be:

Change from the post-control to the pre-control, focus on real-time and forward-looking residential cost control, and emphasize the timely detection and of problems before occurrence. Establish systematic concept of cost control for residential project and also take into account other goals. Change from paying attention to single phase of design and construction at present to life cycle cost control considering cost of various phases. THE SUPERIORITY OF USING VE ON COST CONTROL FOR
RESIDENTIAL PROJECT

III.

Traditional cost control methods include standard cost method, operating cost method and ration method. Regardless of standard cost control method or operating cost control method, they must go through the following steps: make the cost control standards - reveal the cost difference--and promptly correct the deviation. These methods with wide applicability also show many shortcomings in the real estate business. In addition, the common drawback of traditional cost control methods dedicated to reducing costs for cost control is not conducive to maintaining and enhancing the value of residential project. Value Engineering is an effective modern management technique on increasing the value of the product or project. VE concerned with the whole life cycle cost, relying on teamwork, has achieved the required functions by analyzing the relationship between the cost and product or project function. In recent years, with the application and development of value engineering, both the scope and time frame are expanding. John Kelly and Steven Male divided the application of value engineering in four levels: project, space, parts and components. The main level is the use of value engineering on some major issues such as deciding whether the project construction is built or not and what the construction scale is; Optimize design of space projects in space level; Part-level projects mainly are optimization of space components; In the component level, the use of value engineering optimization component parts (Figure). Applications on different levels of value engineering, the impact on the entire construction project is not same. Value Engineering gradually from a lower-level object-specific technical means to develop a real boost to the value of the entire organization and an effective management tool. With the further development of the real estate industry and serious market competition, the operation of residential projects are required of in-depth study of the consumers real housing needs and correctly handling the relationship between function and cost in all parts to reduce the project costs. Solving such problems is the purpose of value engineering theory that is to achieve the best overall efficiency with the lowest cost.



Concept Phase Proposal Phase Design Phase I The first level: Project The second level: Space

Design Phase II Construction

Strategy and Framework

Tactics and Details

The third level: Parts The fourth level: Components

Figure. Functional analysis carried out at different levels and time

Carrying out value engineering is not limited to the pursuit of lower costs, but both function improved and the final purpose is to improve value. Therefore, VE suits to the requirements of the modern residential project on cost control. Specifically, its superiority in: 1) Emphasize on improving the whole value of the residential projects An enterprise's core competence is not whether in a particular period to reduce the cost of product, or the cost of the product is the lowest, thus separately reducing the cost is meaningless. Only through continuous improvement on the products value and reducing the cost could strengthen the core competence. Different from the cost management and quality management, VE focusing on function and cost assists enterprise to improve core business competitiveness and achieve sustained development capacity by conditionally reducing costs and improving product value. 2) Focus on the cost of the product life cycle The essence of cost control with VE lies in the control throughout the product life cycle. This puts an end to the enterprise in order to reduce the cost of leaving real estate decline in the quality. After delivery because of the same property on the survival and development of enterprises has a significant impact, therefore, all costs after delivery of real estate should be in the list of corporate control. This cost is called life cycle cost. 3) Not refute other cost control methods Application of Value Engineering Act does not preclude the enterprises to adopt other cost control methods. The core of the Value engineering is the prior control of the product design stage, in a matter of control, the enterprise also could use other methods of cost control effectively. In addition, before conducting functional analysis, value engineering can also be used to determine the link of value generated. Therefore, from this perspective, the value engineering method is more suitable for the real estate business to control the residential projects cost. IV. THE SUGGESTIONS OF THE USE OF VALUE ENGINEERING IN RESIDENTIAL PROJECT COST CONTROL

Practice has proved that the cost of the design phase of real estate companies accounts for a smaller proportion of the total cost, but has greater impact on other cost, such as construction and installation cost. Therefore, the earlier the intervention of value engineering is, the more the significant benefits. According to the experts in the planning design stage, the possibility of effecting project cost is 75%-95%, in the technical design phase of 35% -75%. But in the construction stage, only 5% -10% cost savings will be achieved by technical and economic measures. With the progress of the project, there is less chance of cost saving. In addition to the project design and construction stage, VE are more and more applied to early stage of the project decision and planning, therefore, application of VE has become a new trend in practice. B. The choice of breakthrough points From a theoretical view, value engineering can be applied at any stage of project construction. In accordance with the seven time periods of the decision-making, program design, design development, construction design, bidding, construction, operations division, and the application of value engineering have the following breakthrough points: investment intention stage, feasibility study stage, preliminary design stage, construction design stage, construction preparation stage (bidding), construction stage and operational stage. In residential project, the breakthrough point of the value engineering activities can be adjusted with the specific condition. C. Application process After determining the object of the VE, the enterprise should focus on the full collection of relevant information. The more the information is, the more the improvement value of object. Value of the project implementation relies on the size of information quantity, quality and appropriate time. In addition, the use of value engineering should be trying to break the routine and innovate. Cost reduction and value increment can be caused by updating product design, introducing new technology, material and method. V. CONCLUSION

Value Engineering has 30 years of development in China, but in building and real estate industry development it is still in the primary stage. The theoretical study and practical applications with the international advanced level still have a considerable gap. Through analysis of the problems in cost control for residential project and the development trend of VE, this paper expounds the superiority of the methods for using the cost control, and then puts forward the VE used in residential project cost control work. The application of VE adapted to the development of the project cost control, will have a benefit on improving the value of the residential products and cost reduction. It is of great significance to guarantee the benefit of investment. REFERENCES

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