THE COSTING PROCESS,

COST PLANNING &

CONTROL
RMK 363 – CONSTRUCTION ECONOMICS
 Cost Management

• Construction Cost Management is the establishment of realistic

capital costs of construction projects.

• It embodies detailed cost planning and cost control services to

ensure construction projects are bid, documented and completed
within a pre‐agreed cost framework and in the most economical
manner consistent with program requirements and aesthetic
considerations.

• A Cost Manager or Quantity Surveyor uses their engineering

judgment and experience in the application of scientific
principles and techniques to analyze and develop the best course
of action in regard to cost estimation, cost control and
profitability of the project.
 Cost Management

• Using cost management principles, the Cost Manager or

Quantity Surveyor ensures a project is designed within budget
objectives and meets performance and quality goals.

• The Cost Manager or Quantity Surveyor will work with the

design team to establish the program budget or confirm the
established budget.
 Introduction to Estimating

• What is it?
- Calculation of amount of work & expenses that are likely to
occur. It therefore would indicate the approximate of the actual
project cost.

• What is calculated?
- Cost for material, labour, plant and time needed to execute a
project.
 Introduction to Estimating (Cont’d)

• Why is it important? – Mistake in estimation could lead to:

- Cost overrun – due to miscalculating amount of works to be

done @ under-estimating works

- Time overrun – missing item / work elements needed to be

done lead to variations thus, extra time is needed to complete
the added works.

- Lose on quality
a. Cost overrun may lead to parties compromising on quality.
b. Shortage of budget could lead to cutting down in budget
thus affecting quality level. / lowering quality specification.
 Purpose of Estimating

- The first requirement of any project.

- Help client to decide whether to proceed or abandon the

project
 Depends upon availability of clients budget and resources;
 If a developer is involved, prospective sales ability could
also be accounted.

- To enable decision on procurement method, for example if a

project is of high uncertainty, then a lump-sum approach may
be more appropriate.
Important Information / Data for Proper Estimating
- All relevant drawings, plan, section and details of the
proposed project. These documents should have proper details
to improve accuracy.

- All relevant specifications including details on materials and

construction method to be applied. An information on material
alternatives (in case of unavailability) would also be useful.

- Estimating approaches as required by the client / the ones best

suite the available details.

- Pricing method / rates to be applied for estimating

 Techniques of Estimating During the Design Stages

• Functional unit method

• Superficial method
• Cube method
• Functional area method
• Storey enclosure method
• Approximate quantities method
• Elemental method

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 Functional Unit Method
Cost per functional unit:
(Used at Brief Stage)

• Schools, universities, colleges - per student

• Hotels, hospitals - per bed
• Restaurants, cinemas - per seat
• Car parks - per car

Example:A Hospital of 640 beds

Cost per bed = $16,000

Total estimated cost = 640 x $16,000 = $10,240,000

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 Functional Unit Method (Cont’d)
Cost per functional unit:
(Used at Brief Stage)

• Disadvantages:
- Difficult to allow for effects of design decisions such as plan
shape, storey height, quality, etc
- Separate allowance must be made for site works and external
services

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 Superficial Method
Cost per square metre of floor area:
(Used at Brief and Outline Proposal Stage)

• Advantages:
- Unit is meaningful to all parties
- Most cost data is published in $/m2
- Estimates are quickly and easily prepared

Example:Project of 852 m2 floor area

Cost per m2 = $1,106

Total estimated cost = 852 x $1,106 = $942,312

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 Superficial Method (cont’d)

• Disadvantages:
- Difficult to allow for effects of design decisions such as plan
shape, storey height, quality, etc
- Separate allowance must be made for site works and external
services
 Cube Method

Cost per cubic metre of building volume:

(Used at Brief and Outline Proposal Stage)

• However, this method is already obsolete!!

• Example: Project of 16,000 m3

Cost per m3 = $325

Total estimated cost = 16,000 x $325 =

$5,200,000

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 Functional Area Method

Cost per square metre of functional area:

(Used at Brief and Outline Proposal Stage)

• More accurate than simple superficial method

• No published cost data

• Useful only for client body involved in continuous and

consistent program of similar projects such as:
- Primary and Secondary schools (Ministry of Education)
- Hospitals and medical/community centres (Ministry of
Health)

• Not useful for “one-off” projects 14

 Functional Area Method (Cont’d)

Cost per square metre of functional area:

(Used at Brief and Outline Proposal Stage)

Example:Project of 852 m2 functional area

Cost per m2 = $1,106

Total estimated cost = 852 x $1,106 = $942,312

• Disadvantages:
- Difficult to allow for effects of design decisions such as plan
shape, storey height, quality, etc
- Separate allowance must be made for site works and external
services
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 Storey Enclosure Method

Cost per square metre of building envelope:

(Used at Brief and Outline Proposal Stage)

• However, this method is already obsolete!!

• Uses single price rate similarly to functional unit and

superficial methods

• Incorporates cost effect of design features such as height and

shape

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 Elemental Method

(Individual elements used at Sketch Design and Tender Document

Stage) & (Element groups used at Outline Proposal Stage)

• Element cost are expressed in:

- Percentage of total building cost
- Cost per m2 of gross floor area
- Unit rate per m2 of element
- Total element cost

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 Elemental Method (Cont’d)
• Advantages:
- Flexible, adaptable method, suited to Outline Proposal,
Sketch Design and Tender Document Stages.
- Easily understood by all parties
- Facilitates comparison between projects
- Facilitates analysis of cost implications of design decisions

• Disadvantages:
- Time-consuming
- High level of expertise required

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 Approximate Quantities Method

(Used at Sketch Design and Tender Document Stage)

• Not single price rate method

• Simple, reliable and most accurate method
• Uses actual construction rates for each group of related items
• Responds to the current quantity & quality of material
• Can clearly reflect adjustments of quantity and/or quality
• Cost data readily available
• Time-consuming
• A more acceptable method by the QS if all necessary
information is available
• Applicable only in later stages of cost planning

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 Sources of Cost Data

• Rawlinsons Australian Construction Handbook

(published annually, index updated quarterly)

• Cordell’s Building Cost Guide (published quarterly)

• The Building Economist (published quarterly)

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 Good Practice in Performing Estimating

• Recognise that design does not proceed uniformly across all

elements

• Use both rough and sophisticated techniques in the one estimate

if necessary

• Use an appropriate technique for each element

• Technique must reflect amount and quality of information

available

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 Characteristics of a Good Estimator
• A good estimator should:
- Apply correct estimating method
- Have good understanding on drawings & able to properly visualize
works.
- Able to predict or avoid the unexpected.
- Understands construction materials, methods and systems, as well as
the labor and equipment required to complete all tasks in their correct
sequence, on time and on budget.
- Being a systematic, careful and vigilant person would be an added
value for an estimator.
- Have sound knowledge of estimating principles.
- Have sound knowledge of Standard Method of Measurement.
- Carrying out estimates in proper sequence – starting from taking off
quantities  squaring  abstracting  pricing / estimating.