Pre-Contract Cost Planning and Cost Controlling - Assignment Example

? PRE-CONTRACT COST PLANNING AND COST CONTROLLING INTRODUCTION When undertaking a project such as construction, it is important for individuals involved to keep in mind cost planning as well as cost control. Cost control is a key objective in any given construction project and should, therefore, be recognized that, it is only achieved through the final decision of the manager (Potts, 2007, p.12). Cost control takes place when the manager of the project decides that it is time for something to be done differently, whereby the translation of that particular decision is put into practice. For an employer to satisfactorily fund their project, he/she needs to know exactly the much that the project will cost them and when he/she will have to pay (Ferry, Brandon, Peter & Ferry, 1999, p.53). A team of consultants are responsible for providing the service during the pre-contract period, as well as the information needed, and this is what is referred to as Cost Planning and Cost Controlling. Cost planning is considered important where successful planning, design and construction of projects are concerned (Mincks & Johnston, 2004, p.102). Its main objective is to provide the best value solutions to project managers. Cost planning not only enables capital cost budgets to be set but also provides a structure to accommodate as well as manage transformations to the client’s brief and design (Murdoch & Hughes, 2007, p.80). An effective Cost plan enables a client together with the design team to understand where and how finances have been allocated towards the completion of a project. On the other hand, Cost control should be provided from start to completion of the project, ensuring that the estimated final cost is always known. However, Pre-contract Cost Controlling is quite different from the Post-contract Cost Controlling. ESSAY Pre-Contract Cost Planning and RIBA Plan of Work As aforementioned, an effective construction plan is the foundation of the budget development as well as schedule for work. Pre-construct cost planning is thus crucial when preparing a construction plan. Even though construction costs can be pre-planned as well as estimated, it is quite possible for these to significantly change in the course of the actual construction (Chitkara, 1998, p.99). Pre-contract cost planning informs the owner when financial installments will be required to enable him/her keep current with the billings (Ferry, et al., 1999, p.55). When establishing a pre-contract cost plan it is important to create one that follows the RIBA Plan of Work. RIBA plan of work is one that tends to organize the process of managing as well as designing building projects while administering building contracts to a number of essential Work Stages (Potts, 2007, p.13). The Work Stages included in the RIBA Plan of Work are Preparation, Design, Pre-Construction, Construction and Use (Mincks & Johnston, 2004, p.109). Under the Preparation stage, identification of client’s needs and objectives is done. Feasibility studies as well as assessment of options enabling the client to make a decision is also prepared under this stage (Murdoch & Hughes, 2007, p.81). The contractor then develops an initial statement of requirements into the Design Brief as a way of confirming the main requirements and constraints. The Design Brief is then implemented, and additional information prepared. Under the Design stage, concept design is developed and includes updated outline specifications, cost plan and structural and building services systems (Ferry, et al., 1999, p.57). The Pre-Construction stage involves preparation of production information in full detail enabling tender(s) to be acquired. Further information for construction required under the building contract is also prepared after application for statutory approvals has been done (Chitkara, 1998, p.100). Identification as well as evaluation of potential contractors for the project is then carried out, and recommendations submitted to the client. During Construction stage, the building contract is let, and the contractor appointed information is issued to the contractor and site hand over to the contractor arranged (Mincks & Johnston, 2004, p.111). Any information provided by specialists or contractors is also reviewed. In the last stage, administration of the building contract is done once Practical Completion and final inspections have been carried out (Potts, 2007, p.14). The building user is then assisted in the course of the initial occupation period where review of project performance in use is done. Pre-Contract Cost Planning Process with respect to the RIBA Plan of Work There are a number of stages or rather processes to be followed in Pre-contract Cost Planning, and these are; Inception, Feasibility, Scheme Design, which also involves, outline proposals and detailed design, Production Information, Bills of Quantities and Tender Action (Murdoch & Hughes, 2007, p.82). During Inception, a number of questions are usually taken into consideration, for instance; what purpose the building will serve, why the building needs construction and what exactly is to be constructed? An architect is then appointed to manage the plan and construction of the venture (Chitkara, 1998, p.113). Next, under the Feasibility stage, the design team takes a look at the client’s proposal to ensure that there are no major challenges or constraints in relations to the proposed type of building together with the site chosen for the project (Ferry, et al., 1999, p.61). Investigations are then carried out with regards to the topography, sub-soil conditions as well as any legal constraints that may arise. Outline Planning Permission is then applied for (Potts, 2007, p.15). The Feasibility stage is important in the Pre-construct Cost Planning process as it tends to look at the possibility of the project being practical. A few factors also need to be taken under consideration, for instance; other developments, financial consideration, competition, planning controls, need, support, opposition as well as roads, traffic flow, and densities together with availability of land (Mincks & Johnston, 2004, p.114). In the course of the building project, assessment of the construction costs needs to be carried out, and this involves elemental cost analysis, approximate estimating, Bills of approximate quantities and cost per unit area (Murdoch & Hughes, 2007, p.83). Elemental Cost Analysis is usually founded on historical information from already finished projects where the costs are broken down into elements of construction, and indicated on a metre-squared basis (Chitkara, 1998, p.117). Cost per unit area is also based on historical information gathered from similar finished projects. Despite the fact that it is not quite accurate, this particular method is considered easy to calculate. Approximate Estimating needs detailed data regarding the design requirements of the particular project, where cost is obtained by taking off quantities and coming up with an estimate (Mincks & Johnston, 2004, p.116). A bill of Approximate Quantities is a rather time-consuming method as it requires a Bill of Quantities to be produced before an estimate can be achieved (Ferry, et al., 1999, p.63). Under Pre-construct Cost Planning procedures as per the RIBA Plan of Work, there is the Scheme Design stage. This is created from the Design Brief made available to the architect by the client (Potts, 2007, p.16). The Design Brief is important as it provides the design team with as much information as possible to guarantee that a building that is suitable to the client’s needs and requirements is produced (Murdoch & Hughes, 2007, p.84). After obtaining a Building Regulations approval, detailed cost estimate is acquired where the remaining Production Information is produced. A Bill of Quantities is then prepared by the Quantity Surveyor who takes all the materials requirements off the working drawings (Chitkara, 1998, p.123). The Bill of Quantities lists in full detail all the material components needed to construct the project (Ferry, et al., 1999, p.67). Contained under this Bill is the Form of Tender, Preambles, Measured work section, Preliminaries, final summary, dayworks, prime cost and provisional sums (Mincks & Johnston, 2004, p.118). Without effective pre-contract cost planning, majority of property owners would enter blindly into construction projects (Potts, 2007, p.17). Pre-Contract Cost Controlling As observed earlier on, it is advisable to develop a Cost Plan before coming up with cost control. Cost control is considered a vital part of the construction project and should be maintained throughout the construction period as a way of ensuring that the cost of the building is within the budget. Cost control can be defined as a process through which expenses of cost in a project are monitored, from the start of the client’s idea to the completion as well as final payment on site (Chitkara, 1998, p.127). There are a number of objectives relating to cost control for instance the fact that it gives the building client good value for their money. Cost control also maintains total expenditure within the amount allocated by the client, where it is often based on an approximate estimate of the cost created by the Quantity Surveyor during the initial stages of the design process (Murdoch & Hughes, 2007, p.85). The cost control of any given project usually incorporates measuring and collection of the cost record of a project (Ferry, et al., 1999, p.71). Another aim of Cost control is to achieve the maximum gain within a specified period of time in addition to providing satisfactory quality of work. This particular process is capable of influencing the final cost of the project positively, where negative performance trends exist (Mincks & Johnston, 2004, p.121). Pre-contract Cost control incorporates activities such as cost management and cost report in different scenarios. Those involved in a project are responsible for reducing as well as controlling the costs. A site manager needs to receive cost reports on a weekly basis, and once the reports have been prepared as per the cost information collected, it is advisable to project the costs into future, estimating or re-estimating the cost of the work yet to be finished (Potts, 2007, p.18). Unit costs are the direct costs of one unit of measurement for a given item, and this is utilized in cost information. For one to be able to provide useful analyses of cost information gathered in the course of pre-contract cost control there needs to be a certain standard available. Estimation of possible results from historic performance and experience are ways of setting standards in construction (Chitkara, 1998, p.130). Pre-contract Cost Controlling Procedures as per RIBA Plan of Work Just like it is with pre-contract cost planning, pre-contract cost controlling also involves a number of procedures or steps towards the completion of a building project. A contractor has the ability to influence the cost of a job through his choice of construction methods, together with adjustments of these methods in order to increase the efficiency of the resources utilized (Mincks & Johnston, 2004, p.128). It is important to make a decision as to which control is needed, as well as the amount of detail that will be included in the construction stage. A number of cost control procedures have in the past been used by different firms but have unfortunately proved not to be successful towards the completion of a project. Cost control procedures usually start with the construction cost input, when the development of a budget is done initially and proceeds through the life of the project (Murdoch & Hughes, 2007, p.86). Pre-construction estimates are given as a way of ensuring the design goes on within the established budget. As mentioned before, RIBA Plan of Work involves a number of stages which include “Appraisal, Design Brief, Concept, Design Development, Technical Design, Production Information, Tender Documentation, Tender Action, Construction and Use” (Ferry, et al., 1999, p.73). Under pre-contract Cost control, there are also steps to be followed as per the RIBA Plan of Work. The cost control process includes influencing factors affecting the cost baseline as well as managing agreed transformations in cost when/as they take place where these changes are then recorded against the cost baseline (Potts, 2007, p.19). Under the cost control procedures, review and modification of the business project is carried out. The project design is subject to change as the client’s preferences and economic factors are also subject to change. Therefore, the design of the project’s cost control should be able to change in accordance to one’s competitor’s actions and the general construction market status (Murdoch & Hughes, 2007, p.87). Just as it is the case with pre-contract cost planning, it is also necessary to keep the contractor and client updated on the costs and production data. The production information should be prepared in sufficient detail as per the RIBA Plan of Work requirements. Cost control procedures aims at reducing the cost of, and maintaining the quality and quantity of a particular production process (Mincks & Johnston, 2004, p.130). One of the most important procedures under pre-contract cost control is time management. Though this is not included in the RIBA Plan of Work, it is still considered an important part of cost control. The contractor should, therefore, be in a position of effectively dividing the amount of wages given out with the number of work hours per month (Ferry, et al., 1999, p.77). Cost control does not only involve monitoring of costs together with recording of quantities of information, but also carrying out the analysis of information so as to take corrective action on time (Chitkara, 1998, p.135). In other words, pre-contract cost controlling involves gathering actual costs and maintaining updated records of costs incurred in the course of the project. It is important for the client and construction manager to keep a close eye on cost trends together with anticipating costs of work that is yet to be completed (Potts, 2007, p.20). CONCLUSION Since time immemorial, project management has been recognized as a crucial methodology for the organization, planning, coordination, monitoring and control of project implementation in many parts of the world. Project planning and control is a process followed for the realization of the project’s objectives. In this day and age where projects are experiencing aggressive deadline and limited resource availability, it is important for the contractor or project manager to possess the necessary skills and tools needed in project Planning and Control. Project planning and control is not only considered cost effective, but it is also more likely to result in project success. Project planning and control acts as an early warning system for clients and construction managers as it identifies troubles while there is still a sufficient amount time to get a resolution to them. REFERENCES Chitkara, K. K. Construction Project Management: Planning, Scheduling and Controlling, new Delhi, India: Tata McGraw-Hill Education. 1998. Ferry, Douglas J., Brandon, Peter S., and Ferry, Jonathan D. Cost Planning of Buildings, 7th Edition, Malden, Mass.: Blackwell Science. 1999. Mincks, William R., and Johnston, Hal. Construction Jobsite Management, 2nd Edition, New York: Cengage Learning. 2004. Murdoch, John, and Hughes, Will. Construction Contracts: Law and Management, 4th Edition, London: Taylor & Francis. 2007. Potts, Keith F. Construction Cost Management: Learning from Case Studies, London: Taylor & Francis. 2007. Read More