CONSTRUCTION ECONOMICS IV

(DQS 256)
COST PLANNING AND COST CONTROL

PRESENTED BY:
SHARIFFAH ZATIL HIDAYAH BT SYED JAMALUDIN
DEPARTMENT OF QUANTITY SURVEYING
FACULTY OF ARCHITECTURE PLANNING AND SURVEYING
UiTM SAMARAHAN, SARAWAK
 COST PLANNING
DEFINITIO
N

▪System that requires total coordination of the project from its

commencement to completion.
▪Systematic framework procedure and demands high
commitment from the design team to cooperate with the QS
to ensure the cost, time and quality are achieved.
▪ CP involves a variety ofIntroduction
procedures and techniques
to Costused concurrently
Planning (CP)by the QS or building
Process
economist.

▪ Traditional CP will usually follow the conventional design process.

▪ CP starts with the development of a figure (or cost) to allow the client to decide whether the project is
feasible.

▪ It starts with unit cost method, refine using the elemental method; component elements &
sub-elements.

▪ The development of elemental method enables the cost of a scheme to be monitored during the
various stages of design development.

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 TERMS
Cost and price
Cost - refers to the amount incurred by a client
Price - amount offered by a contractor.

Cost control
Embracing all methods of controlling the cost of a project from its inception to
completion

Cost planning
Method of controlling the cost of a project so that it will not exceed the preliminary
estimate at the design stage and including cost planning preparation process and
subsequent cost checking processes.

Cost plan
A cost statement in terms of how a designer intends to design each element or part of a
building.
 definitions
Cost analysis
It is a systematic breakdown in accordance with the elements intended to facilitate the cost
checking.

Element
It is the main element of a building that performs the same functions regardless of difference in
specification and design.

Cost limit
It is the client’s maximum budget for clearly defined
client requirements.

Elemental cost target

This is a budget allocation that is specified for each element
 OBJECTIVES OF COST PLANNING

•Ensuring client receives value for money

•Ensuring both client and designer are aware of the

implications of their decision on cost

•Providing advice to the designer in order to enable

him/her to design within the budget

•Integrating cost with time and quality

 ADVANTAGES OF COST PLANNING SYSTEM
▪Ensure that the tender figure is as close as possible to the
preliminary cost estimate.
▪Ensure that the funds available for the projects are
allocated effectively and economically to the various
elements and sub-elements.
▪Effectiveness value for money and balanced
expenditure due to cost checking and cost control and
QS involved in the early stage of design process.
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 Advantages of cost planning system

▪Bills of Quantities can be prepared easily since the QS is

already familiar and clear understanding

▪Cost planning which could be derived in ECA forms

could be compared with other projects

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 Disadvantages of cost planning system

▪ It requires a lot of preparation at the early design process. In practice

especially for a normal project, only inception and feasibility are
conducted before tendering process.
▪ Consultants may not comfortable because different working style –
levels of design.

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 ▪ A QS need to be equipped with vast experience and
knowledge pertaining to cost and factor affecting cost -

Disadvantages price, quantity and quality adjustments.

of cost ▪ Time consuming and cost consuming – more drawings and

planning documents are needed

system

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Design Process Terminology

COST CONTROL (Estimate can occur at any stage of this process)

COST PLANNING
AGREED OUTLINE COST PLAN
COST LIMIT COST PLAN COST ANALYSIS
FINAL COST CHECKS
PRELIMINARY COST ADVICE COST CHECKS

SCEME DESIGN

INFORMATION
PRODUCTION

COMPLETION
OPERATIONS

TERMINOLOGY
FEASIBILITY

MANAGEMENT
QUANTITIES
PROPOSALS

FEED BACK
INCEPTION

PLANNING

HANDBOOK
OUTLINE

BILLS OF

PROJECT
TENDER
ACTION
DESIGN
DETAIL

R.I.B.A.
SITE

M
G

K
A

D
B

L
F

TERMINOLOGY
PREPARE COST PLAN OF POSSIBLE SOLUTION

SKETCH

USUAL
BRIEFING WORKING DRAWINGS SITE OPERATIONS
PLAN

DETAIL DESIGN
OUTLINE DRAWINGS
CONTRACT RECORD
DESIGN PILOT DETAILS DRAWINGS DRAWINGS
PLANS
CONFIRMATION OF SCHEME PRODUCTION
COST LIMIT DESIGN INFORMATION QS TASKS IN COST PLANNING PROCESS
PLANS DRAWINGS
UNIVERSITI TEKNOLOGI MARA 12

Phases of Cost Planning

Activities Cost study Feasibility studies Outline cost plan Detailed cost plan Final cost plan
Design stage Inception Feasibility (first Outline proposal Scheme design Detailed design
official estimate)
Design definition No of occupants Schedule of area Outline drawings Scheme drawings Detailed drawings

Cost data Cost per unit Cost m2/GFA 1)Cost m2/GFA Element Unit Rate Schedule of Rates
2)% total cost of major
elements
Cost calculation Cost study of 1) Preliminary Estimate based on major Estimate based on individual Approximate quantities
techniques similar buildings estimates based on elements. It uses area method elements in which the Element method
based on unit area method where and its % total cost of major Unit Quantity X Element Unit
method cost data will be elements Rate
chosen using
interpolation method
2) Financial method
– preparation of cash
flows*
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Phases of Cost Planning

Activities Cost study Feasibility Outline cost plan Detailed cost plan Final cost plan
studies
Simplify Total cost = No. Total cost = Cost of major element = (% Cost of individual element Quantity of major
calculation of unit x cost/unit m2GFA x total cost of major element) = EUQ x EUR item x composite
cost/m2GFA x m2GFA x cost/m2GFA rate of an item
Calculated Single point Single point figure Total cost and major Total cost and Individual Total cost and major
amount figure of total of total cost elements elements items only
cost
Reason To establish the To determine To determine cost target Prepare cost check on cost Prepare final cost
idea on how actual budget/cost target check on cost target
much is the limit of the project
rough cost
(rough cost limit)
Accuracy -25 to 50% -15 to 25% -10 to 5% -5 to 10% -5 to 5%
 ROLES AND RESPONSIBILITIES OF QUANTITY SURVEYOR

STAGE OF WORK ROLES

Inception Determine project finance methods and clients capacity
Preparing cost study and cost range
Feasibility Preparing feasibility report and cost limit

Outline proposal Preparing outline cost plan according to group element

Scheme design Preparing detail cost plan according to individual

elements
Detail design Carrying out comparative cost study, cost check by
comparing detailed cost plan with the design proposal
Production information Preparing BQ
Ensuring cost check is continuously done
BQ Finalising BQ and preparing cost checking
 ROLES AND RESPONSIBILITIES OF QUANTITY SURVEYOR
STAGE OF WORK ROLES
Tender action ▪Compiling pre – tender estimate, as reference while
preparing Tender Report
▪Carrying out cost check
▪Preparing tender report and submitting to the client
▪Preparing cost analysis
Project planning Preparing of contract document and carrying out cost
check
On site operation Carrying out continuous cost control and cost check
Preparing Interim Valuation
Preparing Financial statement
Scheme design Preparing detail cost plan according to individual
elements
Completion Completing final account

Feedback Preparing final account and work record analysis

 COST PLANNING PROCESS

Phase 1 – Estimating or establishing the cost target

Phase 2 – Cost plan

Phase 3 – Cost check

Phase 1 – estimating or establishing the cost target

The cost target must be realistic, total must be sufficient to complete a project that caters to all client’s needs.

Analysed building Proposed building

500m2

Total cost of proposed building = Cost/m2 GFA (analysed) x GFA

(proposed)
= RM 1,500 x 500
= RM 750,000
Cost target ( cost limit) = Cost/m2 GFA (analysed)
x GFA (proposed)

The cost limit of a project can only be obtained by adding the building cost to other
costs like infrastructure, site cost, consultant cost, interest rate and profit.
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• The cost limit will be very much

influenced by:-
i) The floor space required
ii) The standard of accommodation
iii) The function of the building
iv) Either client type:-
a) Client – prescribed accommodation requirement but unaware of cost
implication
b) Client determines both be accommodation requirement and cost limit
through past experience
c) Client prescribed a cost limit, design team to produced standard
accommodation that can be provided for this sum
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Methods of Cost Limit

1. Financial method
‘Developer equation’
Established by means of the developer budget
This method is used only in the private sector where profit making is the sole
motive of any development and this consideration determines the permissible
cost of a building
2. Interpolation method
Comparison with cost of similar buildings by cost/m2GFA
Assessed from a comparative study of known costs of similar building
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Procedure of Interpolation Methods

• Collect all available cost analysis for buildings of similar use, update
and compile histogram. Example:

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No. of Buildings 7
Common range
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200 300 400 500 600 700 800

Cost/m2 GFA
Result: Most buildings – the range is between RM 400 – 600/m2 GFA
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Procedure of Interpolation Methods

• Select/choose ONE cost analysis closest to proposed building in
QUALITY.
• Isolate major difference between proposed building and cost analysis
chosen.
Difference:
1. GFA
2. Tender date
3. Items shown in analysis but NOT REQUIRED in proposed
building
4. Item REQUIRED in proposed building but not provided in cost
analysis
5. Significant differences in preliminaries and contingencies.
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SUMMARY
Preparation of ‘First Estimate’ by ‘Interpolation Method’
1. A range of ‘Cost analysis’ of the same ‘type’ of building as the proposed building is assembled.
2. This range is examined to find the ‘cost analysis’ of the building whose ‘quality’ approximates
most closely to that desired by the client.
3. The initial brief of the proposed building and ‘all’ of the information given in the cost analysis are
studied in order to ‘isolate’ the ‘major differences’ between the two building.
4. ‘Allowances’ are made for each of these ‘major differences’ (including, of course, differences in
floor area and general market level).
5. Finally, an allowance is made as a reserve against price rises between the general market price
level at the date of ‘preparation’ of the ‘first estimate’ and the ‘contractor’s’ price level of the
tender.
 Phase 2 – Cost plan
▪ The main objective at this stage is to plan and to determine how estimates should be allocated among the
parts or elements of a building.
▪ The cost plan has to be provided based on estimate and the client’s brief.
▪ The cost plan helps to provide quality buildings within the limited budget but it is not produced the cheapest
building.
▪ Several ways how the cost target can be prepared. These include :
i. Fixed cost target like expenditures on infrastructure, hospital building and school.
ii. The cost target can be calculated by obtaining the average cost of similar accommodation like cost/m2
iii. Prepare an estimate on the design chosen by the client.
 Phase 2 – Cost plan

There are three (3) cost plans to be prepared are as follows:

1. Outline cost plan - estimate based on major elements

⚫ The preparation of cost plan is to determine the cost target of major elements and to finalize the
proposal chosen by the client.
⚫ The proposal to be chosen by the client must be in the figure of cost limit determined earlier during
feasibility study.
2. Detailed cost plan - estimate based on individual elements

The preparation of cost plan is to check whether the cost target determined
during Outline Cost Plan within its limit. It is called as cost check.
It happens because the design may have changes from outline drawings to
detailed drawings.
The preparation of Detailed Cost Plan could have a number of revise cost plan due
to the changes in design proposals. The changes of design proposals happened
because of:
⚫ Cost check > cost target
⚫ Cost check < cost target

There are remedial actions to be conducted if the cost check > cost target or cost check < cost.
If the cost check = cost target, the planning to proceed with final cost plan.
3. Final cost plan - estimate based on approximate quantities
Ensure that cost targets do not exceed cost limit.
If yes, then designers will come out with tender drawings to prepare tender documents
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Definition
It is a process whereby the estimated cost is being checked against cost target set
or elements of building and takes place during the design stage of contract.
The checks are carried out by the Quantity Surveyor and the control exercise of the
Architect.
In another words, cost checking is the process of checking the estimated cost of
each section or element of the building as the detailed designs are developed,
against the cost target set against it in the cost plan.

Total cost target = Cost target = Cost limit

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The important of Cost Checking

To make sure the cost of design prepared by the Architect does not
exceed the cost target.

The principles of Cost Checking

The cost plan is the essential point of reference to which all cost
checks must be referred.
A cost check must be done on nothing more nor less than a complete
element.
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Remedial Action
Result Action

1. Cost Check ≈ Cost Target 1. Cost target is confirmed

1. Surplus fund subsidise element in

situation 3
2. Cost Check < Cost Target
2. Elements upgraded
3. Surplus kept as reserved

1. Use surplus fund in element in situation

2
3. Cost Check > Cost Target 2. Redesign – lower the standard
3. Inform client to put more money – Cost
Limit will increase
 Phases of Cost Planning

▪ The cost planning process in practice may not follow the above steps thoroughly. The reasons are time
constraint, high consultant fees and it is a tedious process. Certain cost planning phases are to be
skipped e.g. detailed cost plan and final cost plan may not be needed if the proposed buildings are
standard and common in designs. However, the cost planning phases must be followed strictly if the
designs are complicated, one-off, high risks and expensive.

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PRICE AND DESIGN RISKS

In preparing cost limit and/or outline cost plan, an allowance should be made for unforeseen
difficulties, which may come to light later in the design process, and price rises between the
preparation of the cost limit and the receipt of tender and between receipt of tender to the
completion of project.
Design contingencies
A percentage allowance should be allowed for changes that can occur for unforeseen problems
during the design period and the construction period. Normally a well thought design scheme
would carry a small percentage than one where many problems have to be solved by the design
team. As the scheme progresses through the various stages of design development, it can be
expected that the percentage will fall to reflect the greater certainty of the design decisions.
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PRICE AND DESIGN RISKS

Contract contingencies (differences in contract particulars)
The magnitude of contract contingencies generally reduces as the design progresses. In normal
circumstances, the percentage may range from around 5% in the early stages to fall to possibly
as low as 1% in the tender document stages, subject to assessments of the possibility of
unforeseen problems. A repetitive design on a normal site, the percentage may be lower.
Price risks – escalation to tender date, contract cost adjustment
Prices are expected to move between the preparation of outline cost plan and the receipt of tender
and between the date of tender and the completion of the project. If the contract includes price
fluctuation, then this amount will be paid during the progress of the works in progress payment. If
the contract does not allow for price fluctuation, a percentage allowance should be given by
predicting the construction market from tender to completion of project. The allowance made will be
related to the length of construction time for the project and the risk involved. It will increase the
longer the time needed to complete the works.
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PRICE AND DESIGN RISKS (SUMMARY)

Price Risk
• Adjustments of the cost analysis figure by multiplying the appropriate figure by an index e.g. Tender Price
Index.
• Related to market condition which corresponds to fluctuation of prices
Example:
Costs are rising at 2%-5% per annum in normal situation
Design Risk
• An allowance must be made for uncertainties in the (as yet) for from finished design.
• Larger % of design needs to be added to cover design risk at inception than at much later stages during design
process.
• % depends on:
i) Client
ii) Type of project/contract
iii) General familiarity of each consultant
• Almost negligible to some project (small projects) but at certain circumstances may represent 30 – 40% of
estimates cost if it is high risks projects e.g. KLCC Twin Tower project and its magnitude.
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PRICE AND DESIGN RISKS

(SUMMARY)
‘Price and design risk’ is allowed to take account:
• Type and complexity of design
• Nature of client
• Price trends
• Delay prior to receipt of tenders
Percentage adjustments on price and design risk depend on the experience
of the designer and the QS familiarity with the cost planning procedure.
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ADJUSTING AND UPDATING PREVIOUS ANALYSIS

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There are three factors affecting element cost and adjustments are to be made to the cost
analysis. It should be done in this order of the factors:
1. Price Level (Tender Price / Location)
2. Quantity
3. Quality or standards and finishes

Adjustment is done on an elemental basis. All three factors are allowed for in each
methods used to prepare cost targets. These methods are:
1. Simple proportion
2. Inspection
3. Approximate quantities
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Adjustment for Price Level

Price level is adjusted due to various considerations:
• Difference in general market price
• Variation between the contractor’s price level and general market price
level at tender date
• Difference in site conditions and location
• Difference in contract conditions, weather conditions and the like
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Adjustment for Quantity

Assuming that the quantity of new element is directly proportional to its
m2GFA
EUQ (proposed) = EUQ (analysed) x m2GFA (proposed) x parameter (proposed)
m2GFA (analyzed) parameter(analysed)

EUQ of internal walls (analyzed) = 1800m2

m2 GFA (proposed) = 2400m2
M2 GFA (analyzed) = 2000m2
Storey height (proposed) = 3.20m
Storey height (analyzed) = 3.50m
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Adjustment for Quantity

Assuming that the quantity of new element is directly proportional to its
m2GFA
EUQ (proposed) = 1800 x 2400 x 3.20 = 1975m2
2000 3.50

Simple proportion cannot be used when:

• EUQ can be measured
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Adjustment for Quality

The adjustments made for a change of the quality of an element are often expressed as percentage
additions to (or deductions from) the costs obtained after adjusting for price and quantity.
Example:
The analysed building has a clear anodised aluminium framing and clear float single glazing in fixed
and sliding windows. The design team decides that they would like to have better quality windows in
the new project. The design team decides to increase the allowance for the element by 20%
(inspection method).
The figure obtained from ECA after adjusting for price and quantity is RM 75,860.00
The cost target is adjusted for quality
RM 75,860.00 + 20% = RM 91,032.00
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Notes:
The price and quantity adjustments are usually done before
the quality adjustment because
• Tend to have more effect on the total cost figure
than the quality adjustment
• The quality of an element is more likely to change
later in the design process than the quantity of the
element
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Example:
(where both price and quantity adjustments are needed)
The following information is for element ROOF
EUR in analysis = RM62.80/m2
EUQ in new project = 1416m2
Total cost of element = RM88,925.00
Index at tender date of Analysed building = 195
Index at date of cost plan = 211
No adjustment of quality is required
Target cost for ROOF = RM62.85 x 1416 x (211/195)
= RM96,298.00
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SIMPLE PROPORTION
This technique is based on the assumption that the cost of an element is
directly proportional to both the general market price level and the quantity
of the element.
This method can be used to adjust for price level, quantity and quality.
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INSPECTION METHOD
Elements or sub-elements such as doors and sanitary appliances, for which no effective
measure of quantity has been devised (for those element without EUQ and EUR).
This consists of assembling a range of costs of corresponding elements in previous
projects to suggest a pattern from which suitable cost targets can be chosen.
Element such as door, which is seldom of great cost significance in terms of total cost is
one where inspection technique may be used.
Inspection method should be used when measures of quantity (no EUQ) are not available,
considerable time would be required for measurement of approximate quantities, and the
quality standard of the element in question is not unusual.
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INSPECTION METHOD
Example: ELEMENT EXTERNAL DOORS
The cost of external doors in existing office building are as follows:

Cost of External Doors

Building Tender date M2/GFA (RM)
(After adjustments for differences in tender
dates)

A Jan 1992 12.75

B March 1993 12.80
C February 1991 13.15

D September 1990 12.24

Decision: After the adjustments for the differences in tender dates, it is
decided that the cost of external doors should be RM12.90 per m2 GFA
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APPROXIMATE QUANTITIES
Used when a new requirement for the project is under consideration and can be reasonably
defined, so that some measurement can be made (when the design is available).
In this method, a relatively detailed specification is required (and prepared) for the element.
Approximate quantities are then measured from this specification and priced in the traditional
way.
At this stage, the specification prepared for this technique is not as detailed as the one prepared
during the tender document stage.
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APPROXIMATE QUANTITIES
Example: ELEMENT – INTERNAL FLOOR FINISHES
Analysed building – PVC tiles to all corridors, entrance and common area.
Proposed building – the architect has indicated that the entrance area finishes
should be of high standard and other circulation area should be of budget grade.
It is advised that floor finishes to the office area are the tennant’s responsibility.
The gross floor area of the project is 2216 m2.
The rates provided are composite.
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APPROXIMATE QUANTITIES
Quantity Rate Total Cost
Type of finishes
m2 RM/m2 RM

Entrance area – High

52 75.00 3,900.00
Grade Ceramic Tiles

Other circulation area –

152 45.00 6,840.00
PVC tiles
Office area – Cement
1,739 10.00 17,390.00
Render
Wet area – Ceramic
200 55.00 11,000.00
Tiles
TOTAL 39,130.00
Thus, Target cost = RM 39,130.00
Cost/m2 GFA = RM 39,130.00/2,216 m2
= RM 17.66
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ITEM TOPIC AUTHOR PUBLISHER YEAR

1 Cost Studies of Building (3rd edition) Ashworth, A Longman 1998

2 Building Economics (4th edition)l Seeley IH MacMillan 1996

3 Building Cost Planning For The Design Team John Smith John Smith 2002
4 Cost Control in Building Design Flanagen, R & Tate, B Blackwell 1997
5 Cost Planning of Building (7th Edition) Perry, D & Brandon, PS Granada Publishing 1991

6 Cost Planning of Building (8th Edition) Richard Kirkham Blackwell 2007

7 Building Economics-Preview (3rd Edition) College of Estate Management College of Estate 2001
Management
Macmillan
8 Manual for the Preparation of Tender Price Index Public Works Public Works 1983
Department,Malaysia Department,Mala
ysia
9 Manual for the Preparation of Elemental Cost Analysis Institution of Institution of 1986
Surveyors,Malaysia Surveyors
10 Building Cost Index Statistical
Department,Malaysia
11 Building Surveyors Institution of
Surveyors,Malaysia
 THANK YOU FOR
YOUR ATTENTION
Describe with suitable examples on the
integration of price and design risks into the
process of preparing cost limit for a proposed
project.
marks)
• In pre – contract cost planning stage, the result of cost checking
exercise shows that the overall cost of the design is more than the
cost target in the cost plan in which the element frame is
exceptionally high. Elaborate the appropriate remedial actions to be
taken by the consultant to reduce the cost.