Cost Planning Techniques

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Cost planning: Techniques - Part 1 Topic No. 7___________________________________________________________________________

Curtin University of Technology, 1999 T 7 / 1School of Architecture Construction and Planning (14/07/99)

COST PLANNING: TECHNIQUES - PART 1

CONTENTS

INTRODUCTION

LEARNING OUTCOMES FROM THIS TOPIC

CHOOSINMG THE RIGHT TECHNIQUE

UNIT METHODDefinitionOperationSources of dataUseExampleStudent example

SUPERFICIAL METHODDefinitionOperationSources of dataUseExampleStudent example

CUBE METHOD (COST PER CUBIC METRE)DefinitionOperationSources of data

UseExampleStudent example

FUNCTIONAL AREA METHODDefinitionOperationSources of dataUseExampleStudent example

STOREY ENCLOSURE METHODDefinitionOperationSources of dataUseExampleStudent example

SUMMARY

REFERENCE LIST FOR THIS TOPIC

SELF ASSESSMENT QUESTIONS

ANSWERS TO STUDENT EXAMPLES


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INTRODUCTION

To complete a task successfully, you must have a good idea how best to carry it out.Having a good knowledge of the options, the different methods to complete the taskwill give you the best chance of being successful.

It is no different with cost planning. Knowing the various techniques means thatyou can apply the appropriate method in the right situation to give the mostaccurate answer. Note, this did not say "the accurate answer".. There is never aguarantee that you have the right answer. However, there are means by which youcan limit the opportunity for error in cost planning.

In this next set of notes we will start to look at some of the techniques used in costplaning.

LEARNING OUTCOMES FROM THIS TOPIC

Having attended the lectures and tutorials it is expected that you will be able to offeranswers to the following questions:

Which method of costing is appropriate given varying levels of informationavailable?

With what degree of accuracy can each of the available methods provide a costfor a project?

What are the single price rate methods of costing? Which methods are more commonly used? Where is the source of information for various costing techniques?

CHOOSING THE RIGHT TECHNIQUE

Cost planning in the early stages of a design can only provide an approximate cost

because of the lack of information available. The techniques at this stage in theproject life cycle are considered to be approximate estimating techniques. The primaryfunction of approximate estimating is to produce a forecast of the probable cost of afuture project, before the building has been designed in detail and contractparticulars prepared. In this way the client is made aware of his likely financialcommitments before extensive work is undertaken (Seeley, 1996, p154).

It must be emphasised at the outset that no approximate estimate can be any betterthan the information on which it is based (Seeley, 1996, p154). The quantitysurveyor should always emphasise that an estimate based on inadequateinformation cannot be precise, and in such a situation would be well advised to givea range of prices, as an indication of the lack of precision that is obtainable (Seeley,

1996, p154). This fact cannot be emphasised strongly enough. The cost plannercannot be seen to offer to the client an estimate of the cost which has been artificiallyinflated (to protect the cost planner) because it will become obvious later when the


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costing becomes more precise. Neither can the cost planner offer an estimate whichis too low, otherwise the client will have set aside insufficient funds to cover theproject. There is only a narrow band in which the cost planner can set the cost.Understanding the limits (or range) that would be acceptable to the client is aproduct of experience.

The choice of method employed will be influenced by the information and timeavailable, the experience of the cost planner and the amount and form of the costdata available (Seeley, 1996, p154). Techniques can vary in the time they require andthe complexity of the calculation. Estimates may be prepared on the back of theubiquitous envelope with little or no significant information, or may take days andweeks based on the most extensive and complex information (Smith, 1998, p119).The result of the estimates will have significant implications for the project andproject team. As Smith (1998, p119) suggests "clients and design teams will act upon theadvice derived from such estimates which can result in changes of design, layout, content,materials, and in extreme cases, could result in the cancellation of the project". Consequently, the way in which the cost is reported to the client is critical. The costplanner must always accompany any estimate of cost with an explanation of the

likely level of accuracy.

Having established the fundamental importance of the costs being submitted itreinforces the need to use the right tool for the job. Let us now look in more detailat each of the methods for approximate estimating.

UNIT METHOD

Definition

The unit method of approximate estimating consists of choosing a standard unit ofaccommodation and multiplying this by an approximate cost per unit (Ashworth,1994, 79). The method is also known as the cost per functional unit method and isone of the simplest and most coarse in application (Smith, 1998, p120). The NPWC(1993, p5.2-1) defines functional units as " the units of performance or occupancy forwhich a building or section of a building is functionally designed".

Examples of cost per functional unit are:

Schools, universities, colleges - costs per pupil place

Hotel, hospitals - cost per bed Restaurants - cost per seat Car parks - cost per car space.

Operation

According to Ashworth (1994, p79) the technique is based on the fact that there isusually some close relationship between the cost of a construction project and thenumber of functional units it accommodates and these functional units are thefactors which express the intended use of the building better than any other. Smith

(1998, p120) suggests that this method can only be used where the building's use canbe analysed consistently in terms of its functional units and comments that it is


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almost impossible to define a relevant and consistent functional unit for somebuildings.

The method of counting the number of functional units is extremely simple, butconsiderable experience is necessary in order to select an appropriate rate. Theserates can be obtained by the careful analysis of a number of recently completed

projects of a similar type, size and construction. (Ashworth, 1994, p80).Adjustments based on professional judgement will always need to be made to takeinto account varying site conditions, specification changes, market conditions,regional changes and inflation. (Ashworth, 1994, p80).

Sources of data

Smith (1998, p121) suggests the following sources of data for this method:

i) Number of functional units

Obtained from clients who may express their requirements in functionalunits. (ie they want a 100 seat cinema complex)

ii) Cost per functional unit

From analysis of previous functional unit costs or from published buildingprice books such Rawlinsons Australian Construction Handbook and theBuilding Economist.

Use

According to Ashworth (1994, p80) this method is one of the simplest and quickestmethods to implement, but it must be used with care. It has a lack of precision andat best can only be a rather blunt tool for establishing general guidelines (Ashworth,1994, p80). Smith (1998, p122) suggest that it can only be used during the very earlystages of a project (ie Brief stage). Estimates are very approximate and will varygreatly depending upon the type of construction and standard of finish. It has beenused in the past by government departments to set general guidelines for their work.It sets the expected cost range for specific building types (ie primary schools, policestations, etc).

Example

Smith (1998, p120) uses the following example:

The total estimated costs for a new teaching hospital would be:

Number of functional units 640 beds Cost per bed $16,000 Total estimated cost = 640 x $16,000 = $10,240,000

Student example

Try the following example using data obtained from the Building Economist (Seefigure 1.1)


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Figure 1.1 - Building costs (Building Economist, June 1999)


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Calculate the total cost for a medium to high rise city hotel - mainlyaccommodation, fully serviced, with restaurants and bars etc, high classfinish to reception areas, restaurants and bars, standard finishes to rooms.The number of units will be 85. The hotel is in Brisbane.

NOTE: All answers to student examples are given after the Self AssessmentQuestions at the end of these topic notes.

SUPERFICIAL METHOD

Definition

This method (also known as the floor area method) uses a single rate technique (cost

per square metre) of estimating to calculate the cost of a building (Smith 1998, p123).The area of each of the floors is measured and then multiplied by a cost per squaremetre.

Operation

According to Ashworth (1994, p80) it is still the most common method in use forearly price estimating purposes. The manner in which the result is calculated iseasily understood by the industry and average construction industry clients (Smith,1998, p123). The area of the building in square metres is multiplied by a suitable rateper square metre. It is comparatively easy to calculate the floor area of a building(Seeley, 1996, p159) and most published cost data is expressed in costs per squaremetre (Smith, 1998, p128).

Sources of data

i) Area to be used in the calculationsAs mentioned earlier it is necessary to know the proposed area of the building. Thearea to be used is called the Gross Floor Area (GFA). This is defined by the NPWC(1993) as the sum of thefully enclosed covered area (FECA) and the unenclosed coveredarea (UCA). As these terms will be used repeatedly throughout the notes, studentsshould have an understanding of what they mean. Both areas are measured in m.

Fully enclosed covered area (FECA)

The sum of all such areas at all building floor levels, including basements (exceptunexcavated portions), floored roof spaces and attics, garages, penthouses, enclosedporches and attached enclosed covered ways alongside buildings, equipment rooms, liftshafts, vertical ducts, staircases and any other fully enclosed spaces and useable areas ofthe building, computed by measuring from the normal inside face of the exterior walls butignoring any projections such as plinths, columns, piers and the like which project fromthe normal inside face of exterior walls.

Unenclosed covered area (UCA)

The sum of all such areas at all building floor levels ... and any other trafficable coveredareas of the building which are not totally enclosed by full height walls, computed by


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measuring the area between the enclosing walls or balustrade (ie. from the inside face ofthe UCA excluding the wall or balustrade thickness). When the covering element (ie. roofor upper floor) is supported by columns, is cantilevered or is suspended, or anycombination of these, the measurements shall be taken to the edge of the paving or to theedge of the cover, whichever is the lesser. UCA shall not include eaves overhangs, sunshading, awnings and the like where these do not relate to clearly defined trafficable

covered areas, nor shall it include connecting or isolated covered ways.

There are various ways that the GFA can be ascertained:

By measurement - this will assume that drawings are provided showing thefootprint of the building

By planning assessment - knowing the size of the site and the plot ratio, theallowable floor area can be calculated

By calculationon a unit basis - some spaces can be designed to suit a specific areaper person or per activity. For instance, an organisation may have specific areaallocations to each employee (ie a typist gets 3m, a director gets 15m etc).Adding all the individual requirements will provide the area required for the

actual occupants. Additional area must be added for the non-allocated activities(ie circulation links, toilets, etc) Calculated from useable floor area - the client may dictate their requirements in

terms of Useable Floor Area (UFA) or in terms of Net Rentable Area (NRA).

The NPWC (1993, p 6.1-3) defines UFA as:

The sum of the floor areas measured at floor level from the general inside face of walls ofall interior spaces related to the primary function of the building. This will normally becomputed by calculating the Fully Enclosed Covered Area (FECA) and deducting...areas supplementary to the primary function of the building ...

(The deductions are common use areas, service areas and non-habitable areas.)

The NPWC (1993, p 6.1-4) defines NRA as:

The sum of all rentable areas within a commercial type building, measured from theinside face of exterior walls and windows at a height of 1.5m above floor level andincluding the area occupied by structural columns, all in accordance with theRecommended Guide for Measurement of Buildings issued by the Building Owners andManagers Association of Australia Limited. [Now known as the Property Council ofAustralia.]

(The deductions from NRA include stairs, toilets, cleaners cupboards, lift shafts,escalators and tea rooms where provided as standard facilities in the building; lobbies

between lifts facing other lifts servicing the same floor, areas set aside as public space orthoroughfares and not used exclusively by occupiers of the building, plant and liftmotor rooms, service vehicle and goods delivery areas and access ways and car parkingand access ways)

The cost planner must ensure if he or she is given an area in terms of UFA or NRAthat areas are added back for all the above-noted deductions (ie lift shafts etc.) inorder to ensure it is the gross floor area that is being used.

ii) Rates to be used in the calculationsThe rate or cost per square metre used in the estimate is intended as a rate for the

cost of a standard or typical building within that function/quality range. The cost ofexternal works, alterations, abnormal items such as piling or unusual foundations,


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locality and contingency allowances, which are normally allowed for as lump sumsor percentages of the building cost, are added to the superficial area calculation(Smith, 1998, p126).

Rates to be used in these calculations will come mainly from two sources (Smith,1998, 127):

Internal office records (data being stored in standard formats from previousprojects undertaken by the office)

Published cost guides such as Rawlinsons Australian Construction Handbook orthe Building Economist

The cost planner should choose the rate carefully ensuring that it relates to the sameor a similar type of building, and of similar quality. If there are different parts to abuilding, each having different functions, then there is no reason why the areacannot be calculated for each of these and a specific rate applied to better reflect thediversity of building types. For instance, there may be a rate per metre square foruniversities complete. Whilst this may be appropriate it would be better if youcould measure the areas for each functional use (ie lecture theatres, classrooms,administration areas) and then apply the relevant rate to each of these separateareas. It is really only a matter of trying to get the estimate as accurate as possiblegiven the information available.

Use

By necessity, the method can only be used when the floor area of the build to becosted can be assessed or measured reasonably accurately from drawings (Smith,1998, p123) or can be obtained in one of the above-mentioned ways. As with the

unit method, it can only be used during the early stages of a project and should notbe use when better quality and more accurate information becomes available (Smith,1998, p128).

Estimates are prepared quickly and are simple, although this simplicity may bemisleading, according to Smith (1998, p128) as it depends on choosing theappropriate rate to use to make the answer valid.

According to Smith (1998, p128) one of the main disadvantages to the technique isthat it is difficult to make adjustments for storey height, quality, site conditions, etc.He also recommends when using this technique that the cost planner check verycarefully what is included in the rate. Separate and additional allowances may have

to be made for items that are above the standard for this type of building such asmore complex footing designs and for work which occurs beyond the face of thebuilding such as external services and external works (Smith, 1998, p128).

Example

Calculate the total cost for a three storey warehouse building in Sydney (excludingexternal works costs) FECA = 1400m UCA = 380m Rate = $750 / m

Total cost = GFA x cost / m

Total cost = (1400 + 380) x 750

= $1,335,000


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Student example

Calculate the total cost (excluding external works and services) for a new motel inSydney (using cost data from figure 1.1) FECA = 500m UCA = 120m

CUBE METHOD (COST PER CUBIC METRE)

Definition

The cube method of approximate estimating was used extensively at the beginningof this century, but has since been superseded because of its inherent disadvantages(Ashworth, 1994, p81). It is a traditional method extensively used by Architects(Ashworth, 1994, p81). All quantity surveyor's offices used to keep a "cube book"

(Ferry and Brandon, 1984, p106). It is a single rate method of estimating, similar tothe superficial method, but based upon the cubic content of a building rather thanthe floor area (Smith, 1998, p128).

Operation

Traditionally, once a contract was signed for construction of a building its costswould be divided by the cubic content and entered into the office price book(Ashworth, 1994, p81). The cost of a new job could then be determined bycalculating the volume and selecting an appropriate rate from the book (Ashworth,1994, p81). The rules for measurement of the volume of a building are fairlycomplex and are controlled by the RIBA (1954). It is not proposed to spend too longdiscussing this techniques as it is now basically obsolete.

Sources of data

As this technique is all but obsolete in Australia, there are few sources of reliablecost data supporting this method. Generally, these would now be the olderpractising quantity surveying firms who might still choose to keep record of theserates, although it seems highly unlikely nowadays that anyone would still berecording such data.

Use

According to Smith (1998, p128) this method is now obsolete in both the UK andAustralia. T his technique was devised to try and incorporate the effects of changesin storey height on the rates being used. The superficial method tends to ignore thevarying vertical aspects of a building (by ignoring differences in storey height).

Example

As the method is essentially obsolete it is not appropriate to spend any time inexplanations or examples.


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Student example

Examples are unnecessary. If the student wishes to learn more about this techniquethey may do so by reference to the various texts on cost planning techniques.

FUNCTIONAL AREA METHOD

Definition

Functional area is defined by the NPWC (1993, p. 5.2-1) Cost Control Manual as:

Any group of accommodation which has a common work function within aparticular type of building.

The objective '... of functional analysis is to derive functional areas and costs for usein budgeting' (NPWC 1993).

Smith (1998, p129) suggests that it is useful to quote directly from the NPWC (1993,pp. 5.2-1, 5.2-2) to gain a better understanding of the background to the technique:

Functional analysis is essentially a budgeting tool ... it provides greater flexibilityand accuracy to cost budget procedures, and identifies those functional areas ofdifferent quality and thereby cost ...

One way in which functional analysis may be used in budgeting is:

to identify the functional areas from the brief and to price these using ratesdeveloped from previous functional cost analyses.

To calculate the gross floor area (GFA):

it is necessary to determine and apply an accurate percentage allowance (called theGrossing Factor) ... for circulation, travel and engineering areas ...

According to Smith (1998, p130), the functional area method of estimating combinesor integrates the functional unit method with the superficial method of estimating. Itrefines both methods to provide a technique based upon the costing of functional

areas with appropriate rates per square metre, or costs per functional unit.

In NPWC (1993), a list of functional areas (section 6.5) is presented for the followingbuilding types:

Primary schools High schools / secondary colleges TAFE Colleges General Hospitals


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Operation

Essentially, the major disadvantage for this method of estimating is that it requires alarge database of buildings previously analysed into functional area costs. This isnot so common these days, cost planners preferring to use other methods.

The process for functional analysis of previous projects requires an elemental costanalysis (based on the actual tender) to be completed first and then the elementalcosts are divided between the various functional spaces. This is complex and timeconsuming. Once the database of functional rates is available then the proposedbuilding can be measured according to the NPWC guidelines and the areas allocatedto the relevant functions. The functional area rates are then multiplied by thefunctional area (as measured) for each function and then totalled to give an overallestimate for the new building.

Sources of data

Data can only be obtained from analysis of many previous projects. As this is timeconsuming, it is not a cost effective method of estimating to use unless it is going tobe used regularly. This may well be the case for a government department (ie theEducation Department) who can also afford to pay for the database and associatedanalyses to be prepared.

Use

It can be used at the early stages of a project where the client and designer aretalking about the allocation of space between various functional groups within thenew building. Using this technique allows the cost planner to be involved indiscussions on allocation of space and provide advice on the effects of addingadditional space to one functional area in preference to another. There are someparticularly complex issues to be resolved when measuring the respective areas andalso in the costing of division walls between each area.

Smith (1998, p132 suggests "this technique is not recommended for the 'one-off' orindividual building projects"

Example

As this technique is less common, we will not consider a specific example. Students

wishing to read more about this technique can refer to the texts, in particular Smith(1998, p129 onwards).

Student example

Students will not be required to go through a practical example of this technique.


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STOREY ENCLOSURE METHOD

Definition

According to Seeley (1996, p160) the origins of this method date back to 1954 whenan RICS study group had the objective of developing a better system of estimatingthat would take into account the following:

Shape of building Total floor area Vertical positioning of floor areas within the building Storey heights

Some aspects of the design would still need costing separately. The storeyenclosure method measures the areas of enclosing components and then multipliesthe result by a given rate

Operation

The areas of the various floors, roof and containing walls are measured, each thenbeing weighted by a different percentage and the resultant figures totalled to givethe number of storey enclosure units. The number of storey enclosure units aremultiplied by a given rate (built up from previous projects) to give the overall cost of

the building, to which must be added the external works and services costs.

Sources of data

Unfortunately, the technique had little opportunity to gain wide acceptance becauseit was superseded by elemental estimating. No cost data was collected to anysignificant degree (Smith, 1998, p132)

Use

According to Ferry and Brandon (1984, p108) the technique was not widely used,and with a consequent lack of data on which to accurately base any estimates, itseems the technique will disappear over time.

Example

As this technique is less common, we will not consider a specific example.

Student example

Students will not be required to go through a practical example of this technique.


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SUMMARY

In this seventh Topic we introduced the student to estimating techniques. All ofthese techniques are called Single Price Rate Methods. The techniques included theunit method, superficial method, cube method, functional area method and storeyenclosure method, We have looked at what determines the choice of method for aparticular situation and discussed the accuracy than can be achieved at variousstages using the various techniques. The last three methods (cube, functional, andstorey enclosure) have been included in the discussions because student should beaware of their existence. However, as discussed previously, they are seldom usedand will reduce further in popularity because there is a lack of data from which todevelop an appropriate rate. In the next topic notes we will conclude our discussionof the various methods available for approximate estimating.

REFERENCE LIST FOR THIS TOPIC

Ashworth, A. 1994. Cost Studies of Buildings. 2nd Ed. Longman Scientific & Technical,Harlow, UK.

Ferry, D. and Brandon, P. 1984. Cost Planning of Buildings. 5th Ed. GranadaPublishing, London, UK.

NPWC. 1993. Cost Control Manual. National Public Works Council Dickson, ACT,Australia (students should note that the copyright for this has now been purchasedby the AIQS, who will ultimately be responsible for sales of the manual)

Seeley, I. 1996. Building Economics: Appraisal and Control of Building Design and CostEfficiency. 4th Ed. Macmillan Press, Basingstoke. UK.

Smith, J. 1998. Building Cost Planning for the Design Team. Deakin University Press,Geelong, Victoria, Australia.

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SELF ASSESSMENT QUESTIONS

Question 1: Your client, an architect, is designing a new hotel development andhas some idea of the number of hotel bedrooms he wants to includein the development. He has asked you to give him an approximatecost for the development. Describe the technique you would use to

do the costing and give an explanation to your client why this is thebest method.


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Question 2: Briefly describe each of the following approximate estimatingtechniques:

Unit method Superficial method Cube method Functional area method Storey Enclosure method

Question 3: Hospitals comprise a series of different departments (ie the x-raysection, the operating theatres, the general wards) and each of thesehas different building and equipment requirements. Your client, aprivate hospital developer, has asked you to provide an early stageapproximate estimate for a new hospital and has given you the floorareas for each department within the hospital. Given the above-noted peculiar characteristics of a hospital and the amount ofinformation available, describe which approximate estimatingtechnique would be most appropriate and give your reasons.

Question 4: Using the superficial method and cost data from Figure 1.1 (in thenotes) provide a cost for a double storey hotel in Perth having afully enclosed covered area of 1200m and an unenclosed coveredarea of 200m. AND Describe the advantages and disadvantagesof using the superficial method of approximate estimating.

ANSWERS TO STUDENT EXAMPLES

Student example for Unit Method

1. Decide on the most appropriate unit to be used to cost a hotel:per bedroom unit

2. Look for the rate in the Building Economist which best matches theproposed building's specification

Brisbane, $120,000 per bedroom unit

3. Calculate the cost based on the number of units in the proposeddevelopment 85 x $120,000 = $10,200,000

(it would be wise to round this up to $10,500,000 at this stage)

(this would exclude all the fit-out costs such as soft furnishings,crockery, cutlery, etc and would also exclude any additional costs forexternal works, car parking, etc)


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Student example for Superficial Method

1. Ascertain the proposed gross floor area (GFA) for the building:FECA (500m) + UCA (120m) = 620m (GFA)

2. Look for the rate in the Building Economist which best matches theproposed building's specification

Sydney, $1,150 per m

3. Calculate the cost based on the GFA for the proposed development 620 x $1,150 = $713,000

(it would be wise to round this up to $750,000 at this stage)

(this would exclude all the fit-out costs such as soft furnishings,crockery, cutlery, etc and would also exclude any additional costs forexternal works, car parking, etc)

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