Cost Planning n Control Cpd-2015016k

8/17/2019 Cost Planning n Control Cpd-2015016k

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Cost Planning and

Control13 July 2015

Thomas Wong(Bsc. (QS), MHKIS, RPS(QS), MHKIVM)

(Deputy Director)

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QSD PQSL Series 2015


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Cost Planning and Control

Q1. If you were a Client, what wouldyou expect your project Q.S. to

provide in respect of costplanning and control ?

Q 2. How do you define a successfulcost control ?

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Objectives / Agenda

• To recap Core Competency requirements.

• To introduce the concept of cost control

• To explain the cost control process and itsimplementation

• To identify the cost control tasks in the pre-contract and post-contract stages

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HKIS QSD APC Rules and Guide - Core Competencies

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4. Pre-contract cost planning, estimating and control

• 4.1 Able to understand the build-up of propertiesdevelopment budget, and methods of valuation ofconstruction costs

• 4.2 Able to use cost data including adjustments to variousfactors such as locations, specification, time and market forces

• 4.3 Able to demonstrate knowledge of various factorsaffecting economics of design and construction

• 4.4 Able to undertake financial feasibility and comparative

design studies• 4.5 Able to prepare cost plans, update cost plans and carry out

cost checks and control

• 4.6 Able to prepare cost estimates by various estimatingtechniques

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HKIS QSD APC Rules and Guide - Core Competencies(Cont’d)

• 4. Pre-contract cost planning, estimating and control*

• 4.7 Able to evaluate alternative design solutions and life cyclecosts

•

4.8 Able to prepare and interpret cash flow projections andprofit/loss forecasts

• 4.9 Able to prepare cost reconciliation statements with previouscost estimates and with costs of similar projects

• 4.10 Able to prepare cost analyses

• 4.11 Able to prepare and submit cost data to in-house and/orexternal data collection agencies

• 4.12 Able to use cost estimating, CAD and BIM softwares toassist

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Concept of Cost Control

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Costs

Materials

Labour

Sub-contractors

Plant

Other expenses

Nature and Classification of costs

Direct cost

Indirect cost


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Main elements of a “Control Process” :

1. The preparation of a plan that will achievethe objectives of the work

2. The recording of the plan in terms of theinputs to or the outputs from the system

3. The definition of the quantities and

organization of the resources that will benecessary for the conversion of inputs tooutputs

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Main elements of a “Control Process” : (Cont’d)

4. The use of feedback in order to comparewhat is happening in practice with that

which was planned5. The evaluation of variances arising from the

comparison, leading to decisions as to

whether corrective action is required andwhether a change in resources allocation isnecessary

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Aims of Cost Control / Cost Planning

• Best use of resources to gain the good

value for money during the design andconstruction processes

• Controlling measures exercising in the

design and construction processes toensure the total construction cost / finalsum does not exceed the client’sapproved budget

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Aims of Cost Control / Cost Planning(Cont’d)

• Cost as an element of design during the

design and construction processes toachieve a suitably balanced coststhroughout all parts of the building

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Implementation of Cost Control

• In order to achieve the cost control

function, there are three elements need tobe executed:

i) Cost Planning – to formulate therealistic cost plan for the project

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Implementation of Cost Control (Cont’d)

ii) Cost Monitoring – continuous

process to compare the actual costwith the planned cost

iii) Action – the effective cost

rectification or cost reconciliationaction to review the overallconstruction cost against the client’sapproved budget

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Feasibility

Detailed design

Construction

Time

Cost adjustment opportunities


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Cost Control During Pre-contract Stage

A narrower definition of pre-contractcost control is :

“the total process which ensures thatthe contract sum is within the client’sapproved budget or cost limit”

(produced by RICS committee (1982)

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Pre-contract cost control tasks areexercising at different stages as follows:

i) Feasibility stage –

confirmation ofcost limitii) Outline proposals stage – prepare

possible solutions for cost plan and

agree a outline cost planiii) Scheme design stage – to exercisethe cost checks based on the schemedesign drawings

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Pre-contract cost control tasks areexercising at different stages as follows:(Cont’d)

iv) Detail design stage – to exercise the finalcost check based on the detailed designdrawings

v) Tender Stage – to exercise the costanalysis against the approved budget

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Inception

Stage A Feas ibility Outline

B Proposals Scheme

C Design Detail

D Design Production

E Information

F B.Q.

G Tender Project

H Planning

J Construction

K

Confirmation Prepare Cost Checks Cost Cost

of Cost Cost Plan Analysis Monitoring

Limit of Possible

QS Solutionscost control &

tasks Agreed

Outline

Cost

Plan


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Stage Purpose Basis of CostEstimate

Inception Stage Work out the approximate overall buildingcost for development decisionconsideration

Construction Floor Area (CFA)*x $/m2 (historical data)

* denote the land use (i.e.Residential, office / commercial,industrial, retail, car park, etc.

Feasibility Stage Workout the effectiveness of building costfor feasibility

CFA x $/m2 (historical data)

(normally only conceptualdrawings are available)

Scheme Design

Stage

Provide cost estimate to identify the cost

significant items (facilitate the cost controlfunction)

Element cost estimate

(i.e. element quantity xelement unit rate)

Detail Design /

Tender Stage

Provide the detail of cost estimate basedon the detail design drawings and pre-tender estimate for cost justification

Detailed cost estimate inaccordance with B.Q.

(based on traditional method ofrate build-up)

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• Three categories of Client :i) Clients who have a clear intention of their

building requirements, but are generally

unaware of the cost implicationsii) Clients who have a maximum amount ofmoney to spend and a project in mindbut are unsure of exactly what that

amount of money will purchase.iii) Clients who have their buildingrequirements and who also have a fixedsum of money to spend on the project.

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Advantages of Cost Planning

1. Tender sum is more likely to equatewith approximate estimate

2. Less possibility of addendum B.Q.

3. Cost-ef fectiveness and a value-for-

money design are more likely to beachieved

4. Early involvement of Q.S.

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Advantages of Cost Planning (Cont’d)

5. The result of pre-tender analysisenables more decisions to be takenearlier

6. Cost Planning provides a basis forcomparing different projects

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• Cost planning shall include forecastthe cost implications of a whole range

of design variables, such as size,shape, height, circulation ratio, wall-to-floor ratio and various otherbuilding characteristics, i.e.

complicated shapes result in greatlyincreased building cost etc.

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Elemental Cost Planning

• Sketch plans are prepared and thetotal cost of work is obtained byapproximate method, such as costper place or per square metre ofgross floor area.

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The building is then broken downinto various elements, e.g. internalwalls, floors, internal finishes, roof,etc.

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Elemental Cost Planning (Cont’d)

• Each element is allowed a costbased on cost analysis of similarprojects

• The sum of the cost targets setagainst each element must not

exceed the total estimated cost• That is : designing to a cost

(agreed cost limit)

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Cost Control at Design Stage

1. Substitution between capital andrunning costs to secure theminimum total cost

2. Investigating different ways ofproducing the same building atlower cost

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Cost Control at Design Stage (Cont’d)3. Finding ways of slightly altering a

building so that for the marginally

greater use of resources, the returnsare more than proportionatelyincreased

4. Investigating methods of using thesame resources to produce adifferent building which could givegreater returns

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Cost Control and Design Economics :• Building size

Larger buildings have lower unit costs

than smaller-sized buildings

• Plan shapeThe more complex the shape, the higherwill be the overall cost of the structurebased on the same floor area (i.e numberof corners involved)

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Cost Control and Design Economics : (Cont’d)

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30m

30m

90m

90m

Project A

Project B

Plan area = 900m2Perimeter length = 120m

Wall area = 480m2

Wall-to-floor ratio = 0.53(480 / 900)

Overall height 4m

Plan area = 8100m2Perimeter length = 360mWall area = 1440m2



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10m

10m

4m

20m

A


Wall area = 120m2


Overall height 3m


Wall area = 162m2


3m

10m

B

Allan Ashworth (2004), Cost Studies of Buildings, Pearson : Prentice Hall


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• Storey height

Buildings with high storey height will costmore

• Grouping of buildings

Inter-linked buildings or structures willsave cost

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A B

C

D

Alternative plan groupings of buildings


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Question to think about :

“

What are the corrective actions if the Tender Sum exceeds the

approved budget or cost limit ?”

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Cost Control During Post-contract Stage

• What is the post-contract stage ?

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That is : The time from signing of thecontract until the final certificate

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• What is the main cost controlfunction of an employer’s quantitysurveyor during post-contract stage ?

• To ensure that :

Tender Sum (Contract Sum) = FinalAccount (Final Contract Sum)

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• What is the main cost control functionof a contractor’s quantity surveyorduring post-contract stage ?

• To ensure that :

Actual Expenditure


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Cost Control activities in Post-contract stageincludes the following :-

• Interim valuation and certificates forpayments

• Cash flow control and forecasts throughbudgetary control

• Financial statements showing the current

and expected final costs for the project• Final account, the agreement of the final

certificate and the settlement of claims

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Cost Control activities in Post-contract stageincludes the following :- (Cont’d)

• Attendance at site meetings

• Preparation of documentation forsubcontractors and suppliers, examinationof quotations and invoices and makingrecommendations

• Advising on contractual implications

• Negotiation

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• Confirmation of payments to domestic /

nominated subcontractors (NSC)• Advising on the implications of extensions

of the contract period

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Preparation of special reports on costimplications

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• Completion of documentation which may be

required for some clients, particularlygovernment departments

• Working with accounting department

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Contractor’s Cost Control :

• Comment on profitability of different siteoperations

• Advise on how to reverse a loss-makingsituations

• Record cost details of site operations

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Advise on the cost implication ofalternative construction methods

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Cashflow control :-• Cashflow : the actual movement of

money in and out of a business

• Cash deficit : money out > money in

Contractor requires FUNDING

•

Cash surplus : money in > money outThe contract is SELF-FINANCING

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Cashflow control :- (Cont’d)Cashflow problems can be reducedby :-

• Realistic monthly assessment ofpreliminaries from fully documentedand priced preliminaries schedules

• Increased costs under contracts withfluctuation kept up to date in monthlyvaluations

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Cashflow control :- (Cont’d)Cashflow problems can be reducedby :- (Cont’d)

• Variations to the contract accuratelyassessed and included in valuations

• Daywork sheets completed and

cleared for monthly payment• Discounts and retention monies

properly claimed against thecontractor’s subcontractors and

suppliers43


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Cashflow control :- (Cont’d)

Cashflow problems can be reducedby :- (Cont’d)

• Collection of all monies properly dueto the contractor

• Ensuring that all claims for loss andexpense are fully documented,properly presented and submitted asquickly as possible

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0 1 2 3 4 5 6 7 8 9 10Duration (Months)

Cum. Expenditure

Cum. Income

S - Curve Profit Margin


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Question to think about :

“How can an employer’s quantitysurveyor control the cost during thepost-contract stage, with the

understanding that he has no authorityunder the Contract to issue

instructions ?”

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At an early stage, agree with theContractor for a suitable arrangementfor dealing with daywork vouchers

and claims for increased costs Maintain effective cost control

arrangements by keeping a constantcheck on costs and by supplying costadvice to the Architect for anyproposed variations

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Control the use of contingency sum,make sure that the majority of it is tocover the cost of extra work that

could not be reasonably foreseen atthe design stage, rather than to caterfor design alterations

Ensure that the probable cost of allvariations should be computedbefore the Architect formally issuesvariation orders

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Early consideration should be givento expenditure against provisionaland prime cost sums and the

contingency fund, and theexamination of subcontractors’andsuppliers’quotations.

Produce monthly forecasts of finalexpenditure, and predict and monitorcashflow

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Cost Planning and Control

Successful Cost Control

1. The contract sum is within the client’sapproved budget or cost limit

2. Tender Sum (Contract Sum) = FinalAccount (Final Contract Sum)

3. Value for money

Q & A52

Cost Planning n Control Cpd-2015016k

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