Use of computers in construction cost controlling process - Essay Example

Use of computers in construction cost controlling process Cost controlling, as a tool to aid the process of design development, has been around for the best part of half a century, however, it is only in recent times that the technique has undergone a considerable facelift. It forms an important weapon in the fight to manage project costs and to ensure those clients receive value for money. It is now cleared that costs are not confirmed to initial construction, but also relate to operational aspects such as maintenance, cleaning, energy usage and functional occupancy. In this context cost planning, or more appropriately, life-cost planning, needs to be applied as a matter of routine from the very earliest stages of the design process. It is only through the proper consideration of cost and its relationship to other criteria such as function, aesthetics, performance and environmental impact that society in general and clients in particular will receive value from money from their investments. The Aims of cost management : The overall purpose of cost management is to ensure those resources are used to their best advantage. Value for money is defined as an effective balance between project performance and cost. The main aims of cost management are : To give the value for good money - this will lead to a building that is soundly constructed, of satisfactory appearance and well suited to perform the functions for which it is required, combined with economical construction and layout. To achieve a balanced and logical distribution of the available funds between the various parts of the building - thus the sums allocated to cladding, insulation, finishings, services and other elements of the buildings will be properly related to each other and to the class of building. To keep total expenditure within the amount agreed by the client - this is frequently based on an approximate estimate of cost prepared in the early stages of the design process. There is need for strict cost discipline throughout all stages of design and construction to ensure that the initial estimate, tender figure and final account sum are all closely related. Cost Planning : Cost planning is the means that enables the objectives of project cost management to be achieved. It is the process used during the design stage of a particular scheme to help minimize the cost of construction and subsequent usage, and maximize the functionality that is anticipated by the client. Cost planning is in fact a system of procedures and techniques used by quantity surveyors. Its purpose is to ensure that clients are provided with value for money on their projects; that clients and designers are aware of the cost consequences of their proposals; that if they so choose, clients may establish budgets for their projects; and the designers are given advise that enables them to arrive at practical and balanced designs within budget. Therefore cost planning monitors and helps direct design and organizational decisions in order to achieve the clients cost objectives. Cost planning is a process that brings cost information to bear systematically upon the evolution, construction and maintenance of a project to highlight the relationship between capital and operational investment, quality, function and appearance, and to provide a framework for the management of costs in order to deliver value for money to the client.( Flangan, 1997) The cost plan is one of the principal documents prepared during the initial stages of the cost management process. It is a statement of the proposed expenditure for each section or element of a building related to a definite standard of quality. Costs, quantities and specification details are itemized by element and sub-element and collectively summarized. Measures of efficiency are calculated and used to assess the success of the developing design. The elemental approach aids the interpretation of performance by comparison of individual building attributes with similar attributes in different buildings, and forms a useful classification system. The purpose of cost planning : Thus we have seen, cost planning is part of a wider cost management process that commences with the decision to build and concludes with the completion of design documentation. The main objectives are : The setting of cost targets, in the form of a budget estimate or feasibility study, as a framework for further investigation and as a basis for comparison. The identification and analysis of cost-effective options. The achievement of a balanced and logical distribution of available funds between the various parts of the project. The control of costs to ensure that funding limits are not exceeded and target objectives are ultimately satisfied. The frequent communication of cost expectations in a standard and comparable format. The advantages of cost planning : Advantages of cost planning : The tender sum is more likely to equate with the approximate estimate. There is less possibility of abortive redesign being necessary at the tender stage owing to tender sums being higher than expected. Some elements of cost effectiveness through a balanced design is more likely to be achieved. Cost considerations are more likely to be considered as a full and integral part of the process. The amount of pre tender analysis and evaluation by the design team should result in a smoother running of the project on site. Cost planning provides a useful means of comparing the costs of individual projects. Cost Planning Technique : There are two separate systems of cost planning : Elemental cost planning and Comparative cost planning Elemental Cost Planning : In 1969 the Building Cost Information Service (BCIS) of the Royal Institute of Chartered Surveyors in UK defined an element as follows : 'An element for cost analysis purposes is defined as a component that fulfills a specific function or functions irrespective of its design, specification or construction.' Elemental cost planning is one of a family of techniques based upon parametric modeling. The technique relies upon an extensive database of building costs broken down into elemental costs. This method is sometimes referred to as target cost planning since a cost limit is fixed by the financial method of approximate estimating (Ashworth,2002), and the architect must then design the project to fit within the cost. The cost plan is the architects design in financial terms. The process is therefore described as designing to cost. The method has been used extensively throughout the public sector, where financial limits were placed on proposed expenditure. Process of Elemental Cost Planning : Elemental Cost Planning process is generally carried in two stages : 1) Approximate Estimate Stage and 2) Cost Planning Stage. In the first stage, the client is given the estimated cost of the project - a virtual figure which is likely to be based on the available information. This figure is calculated using the basic preliminary estimates. Actual figure is given to the client at the later stage and once the client agrees this figure is considered as the budget of the entire project. In an outline proposal stage, the cost plan is prepared by using an elemental cost analysis of a similar project and the cost targets are determined respectively. In the Cost Planning stage, a detailed approach is taken. Each element is examined in detail and changes are made based on requirements. Advantages of Elemental Cost Planning : It is worked on the philosophy of predicting or planning how much the building was likely to cost at a very early stage in the design process by simple, yet effective method of estimating. The cost planning technique has served many in offering value added services to clients and the concepts of elements has been incorporated into the development of life cycle costing and value management. Furthermore the current changes to procurement practice are making the cost plan central to the entire process. Disadvantages of Elemental Cost Planning : Although it is possible to set out any estimates in an elemental format, the normal process of elemental cost planning is not really appropriate. For one thing it will not be practicable to make the element-by-element cost comparisons with other projects which lie at the heart of this technique. The costs will depend on the state of the individual building in relation to what is proposed to be done with it, and comparisons with other projects on an elemental basis would be meaningless. Comparative cost planning: This method of cost planning is often described as costing a design. The main difference between this and elemental cost planning is that no fixed elements budgets are necessarily considered. Different design solutions for each element are considered on their respective merits, with the design team and the client making the appropriate selection based upon as much information as possible. The most economical solution may be selected, but this is taken in the full knowledge and awareness of the cost consequences. Process of Comparative cost planning : The cost planning process commences with the preparation of an approximate estimate for each design and then the setting of cost targets for each element. As the design evolves, these cost targets are checked against the developing design and details for any changes in their financial allocations. The prudent quantity surveyor will also always be looking for ways of simplifying the details without altering the design, in an attempt to meet his cost requirements. Not only the building construction be considered, but also the ease or otherwise with which the design can actually be built. Advantages of Comparative cost planning : In addition to providing a full cost planning service the quantity surveyor can assist in evaluating the comparative costs for alternative systems of construction or finishing. This can involve, for example, comparing different plan shapes in terms of costs, or external cladding. The comparisons further are comprehensive in ensuring that all costs are fully taken into account. Reducing for example, the weight of external cladding may also result in savings in the sub structure element. Disadvantages of Comparative cost planning : It is highly essential that the design decisions are taken at early stages. Cost limits : These are sometimes referred to as financial methods of pre- contract cost control. A cost limit is fixed on the building design, based upon either a unit of accommodation or rental value (Ferry, 1999). The architect must then ensure that the design can be constructed within the cost limit. In practice, the cost planning process is usually a combination of the two theories. Most projects recognize the need to set element cost limits, but not necessarily at the strict expense of eliminating the advantages of an overall good design solution. This overall aspect will include the full consideration of life cycle costs, which as far as building costs are concerned increase initial costs. The cost planning process : Whilst there are two systems that are used for cost planning the processes involved are similar. Early cost advice: This is usually done to provide a client with some indications of the likely costs involved based upon the clients broad aims and objectives regarding the project. The methods used for financing the project and the determination of its general financial viability would also be provided at this stage. Preliminary estimate: This is usually prepared at the outset of a project. A quantity surveyor is asked to provide some ideas on the likely project cost. Cost Estimates : An essential element of successful cost management is the ability to accurately and quickly estimate costs. All conceptual price estimates are based on some system of gross unit costs obtained from previous construction work. These unit costs are extrapolated forward in time to reflect current market conditions, project location and the particular character of the job presently under consideration. The following are some of the methods commonly used to prepare preliminary estimates: -> Cost per function estimate: This is an analysis based on the estimated expenditure per unit of each use, such as cost per patient, student, seat, or car space. Construction expose may also be approximated as the average outlay per unit of a plant's manufacturing or production capacity This is generally used as a method as quickly defining facilities costs at the inception of a project when only raw marketing information is known, such as the number of patients that a planned hospital will hold. This broad method of developing costs can also provide a powerful check on more detailed estimates once they have been generated. -> Index Number Estimate: This involves estimating a price of a proposed structure through updating the cost of a similar existing facility. This is done by multiplying the original construction cost of the existing structure by a national price index that has been adjusted to local conditions such as weather, labor expense, materials cost, transportation and site location. A price index is ratio of present construction cost to the original construction outlay for the type of structure involved. Many forms of price indexes are available in various trade publications. -> Unit area Cost estimate: This is an approximate cost obtained by using an estimated price for each unit of gross floor area. This method of estimating facilities cost is frequently used in building and residential home constructions. It provides an accurate approximation of costs for structures that are standardized or have a large sampling of historical cost information from similar structure. This type of estimate is frequently used in the industry to compare the relative worth of various facilities. -> Unit volume cost estimate: This estimate is based on an approximated expenditure for each unit of the total volume enclosed. This estimating method works well in defining the cost of ware houses and industrial facilities. -> Panel unit cost estimate: This is an analysis based on unit costs per square unit area of floors, unit length of perimeter walls, partition walls, and unit roof area. Generally this form of estimating is used to improve the preceding estimates once additional detailed information about the facility is known. -> Parameter Cost Estimate : This estimate involved unit costs, called parameter costs, for each of several different building components or systems. The prices of site work, foundations, floors, exterior walls, interior walls, structure, roof, doors, glazed openings, plumbing, heating and ventilating, electricals and other items are determined separately by the use of estimated parameter costs. These unit expenses can be based on dimensions or quantities of the components themselves or on the common measure of building square footage. -> Partial takeoff Estimate : This analysis use quantities of major work items taken from partially completed design documents. These are priced using estimated unit prices for each work item taken off. During the design stage, this type of estimate is considered to provide the most accurate preliminary costs. Yet, the feasibility of this method is highly dependent on the availability of completed design documents and cannot generally be undertaken until well into the design process. Hence, it is often used as a follow up to the previously discussed estimating methods. -> Computer - Aided Cost Estimating : The most valuable automated estimating tools available to the average cost estimator are the generic computer tools that can be used for any application but are put to use constantly in the field of cost estimating. These generic tools include electronic spreadsheets, database programs, integrated software packages, and special multidimensional spreadsheets and multidimensional database programs. For simple cost estimates consisting only a few elements, the spreadsheet program is usually the quickest and easiest to use. With skilled programming, however, spreadsheet programs can be used to develop large cost modeling programs, specialized cost estimating systems, and even schedule and cost tracking systems. Some commonly used spreadsheet programs are Lotus 1- 2-3, EXCEL, 20/20, Ability Plus, Javelin Plus, Lucid 3-D, Smart spreadsheet, WingZ etc. ( Douglas, 2006) There are probably as many different estimating procedures as there are estimators. In any process involving such a large number of intricate manipulations, variations naturally result. The form of data generated, the sequential order followed, the nature of the elementary work classifications used, the mode of applying costs - all are subject to considerable diversity. Individuals estimators develop and mold procedures to fit their own context and to suit their own preferences. But here, rather than any detailed discussion of estimating methods, only the general aspects of construction estimating are presented. Cost Estimating Methodology : An essential component of any cost-estimating approach is to establish a standard framework from which to classify and manage information. The framework should accommodate the needs of the system throughout its life cycle and be able to respond to the viewpoint and requirements of the various users. If the framework is not standardized, inconsistencies will occur between projects and between stages of each project. A standard framework for construction information will serve the following basic purposes : -> Ensure consistency of work products over time and from project to project -> Provide a frame of reference for collecting and managing information, and eventually, for delivering feedback based on experience. -> Provide a checklist to aid in both management and technical decision making. -> Lay an efficient base for automation. Cost Management Techniques : Construction, like other industries, has been experiencing profound changes involving both the business environment and internal organization. In this context, new cost management information that provides better understanding and helps managing increasingly turbulent and complex production processes is needed. Activity-based costing has been suggested as the leading contender method to replace traditional cost accounting systems, due to its capabilities to make the processes and activities performed in the organization more transparent and observable. CONCLUSION : The construction industry at large, and construction economists specifically, have perhaps not taken up the full benefit that information technology can offer, especially with regards to developments in cost modeling. Contractors and consultants have to cope with the ever-increasing pressures for faster construction to a higher quality at a low cost. Costs should not be simply monitored, they need to be controlled and managed from the early design stage through to project completion. Thus cost control needs to be exercised via a cost plan based on work packages where both design and production costs jointly come under scrutiny. REFERENCES : Ashworth, 2002: Pre-contract Studies: Development Economics, Tendering and Estimating. Ferry, 1999: Cost Planning of Buildings. Flanagan, 1997: Cost Control in Building Design. Griff Boyle, 2003: Design Project Management. Seeley, I, 1996: Building Economics, 4th Ed. James Douglas, 2006: Building Adaptation. Jaggar, 2002: Building Design Cost Management. Myers Danny, 2004: Construction Economics: A New Approach. Michael D. Dell'Isola, 2002: Architect's Essentials of Cost Management. Rodney D. Stewart, 1991: Cost Estimating. Spon, 1990: Architectural Management. Read More