Conceptual cost planning

There is increasing pressure in the construction industry to explore every possible means of reducing cost and increasing the speed of building, while maintaining standards of quality and efficiency. Five of the seven targets set in Sir John Egan's report Rethinking Construction related to cost and the speed of delivering a defect-free building.

To obtain adequate data to provide these estimates there are 2 procedures to adhere to:

• cost analysis aims to examine the cost of buildings already planned or built for which tenders are available; it is in the nature of a 'post-mortem';
• cost planning uses the information gained by cost analysis to maintain a surer control over the costs of future projects.

The classic continuous feedback loop should be adopted to ensure that all new relevant information is incorporated to provide refined modelling.

Elements

The key to this is the concept of 'elements'. Designers tend to think in terms of functions and of the means by which they can be performed. For example, the designer sees as one function the exclusion of rain and weather, and looks to a roof to perform this task. For the purposes of cost analysis, it is immaterial whether the roof is of timber and tiles or of concrete and asphalt. The primary concern is to know how much it has cost to roof-in the building.

So, an element is defined (by BCIS) as 'a part of a building that fulfils a specific function or functions, irrespective of its design, specification or construction'. The cost planning technique has served the profession well, in offering value-added services to clients. The concept 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 whole process.

On private finance initiative (PFI) schemes, the provider's ability to control costs through the life of the building is central to the profitability of the contract. Cost planning, value engineering and life-cycle costing are essential tools in the delivery of optimum solutions. All these techniques are based on the use of clearly defined functional elements.

The existence of a well-founded cost plan is the key to the delivery and control of partnering and prime contracting projects. Indeed, it will be the only method available to set the target costs and administer the contract.

It should be stressed that functional elements were discovered - not invented. They have proved to be such a useful idea because they are part of the intuitive design process of a building. It is not necessary to understand the theory behind functional elements in order to use elements, but it may be helpful to explain how they arise.

Contingencies

These are allowances included in the cost plan to allow for unknown risks associated with the project. The allowances are the result of an assessment of various factors, such as:

• the site;
• market conditions; and
• scale and scope of the intended construction, including the building of the proposed scheme.

Each is usually assigned a percentage, which will usually decrease as the risks are mitigated as site investigations are concluded and the design is completed (or well advanced).

Tendering and market conditions

In the uncertain summer of 2016, the UK had just decided to leave the European Union (EU) and with it, possible access to the single market. Presently the terms of the exit have not been negotiated but the vote has already had an impact on the pound and the stock exchange.

The general consensus is that there will be, at best, a slowdown in the construction industry and that tender prices will suffer as fewer projects are started. During the recession of 2008 RICS Tender Price Index (TPI) fell by 25% and tender prices have only just returned to their pre-recession level.

In the short term, UK cost planners must make allowances for the reduced purchasing power of the pound against the US dollar, euro and yuan for the materials that we import, such as high-end marble and curtain walling. Additionally, the cost of commodities, such as oil, will also increase and this may push up the cost of materials.

From early 2019 onwards, for projects further down the pipeline, the setting up of trade agreements with the EU and individual countries may bring risk into the equation.

The imposition of tariffs will have an effect and items will need monitoring as this will likely push up the costs. This may mean that they are no longer viable for the project.

Acquisition of information

Throughout this section the message is to use the data available to increase the accuracy of the cost-planning procedure. This can also be used to ascertain the procurement risks of various materials, such as steel, curtain walling and marble.

As the cost plan is developed, the quantities and specifications will become available. Items can be assigned a risk factor for cost certainty and to assess whether other suitable materials could be used instead of it. For example, for high-end residential is there another suitable material that could be sourced to replace Italian marble?

An example of this is faience panels. In 2015 when problems with the leading UK supplier and a few large projects coming on stream, could alternative suppliers be used or another supplier be found?

This highlights another problem: where the use of one material could create a logjam and the cost plan may need to be changed if the cost of supply goes up, another material used or if the project is delayed because of it.

The design team should work together to ensure that key components of the cost plan should therefore be assigned a risk value and monitored accordingly. Alternative products should be considered and used if deemed appropriate.

What is a building?

It all starts with a simple question: 'What is a building?'. Most dictionary definitions use examples: 'a permanent structure, e.g., schools, houses, etc.'. However, the words 'school' and 'house' define the use to which a building is to be put. They define a building by its user function.

The International Standard definition is:

'construction works that has the provision of shelter for its occupants or contents as one of its main purposes and is usually enclosed and designed to stand permanently in one place.'

(taken from ISO 6707-1 1989 Building and Civil Engineering - Vocabulary - Part 1: General terms)

This describes a building function - i.e., what all buildings do - as distinct from the user function, which describes what is done in them.

A closer functional definition would be a 'structurally sound, enclosed, useable floor space'. When designing a building, it is necessary to design building parts that fulfil these functions. Parts are needed to make it structurally sound, to enclose it, to provide floor space and to make it useable.

A further expansion of the term 'useable' would include issues of accessibility, environmental control, health, safety, and so on.

Design process

As all buildings potentially have these elements, the design process involves designing the elements so that they provide a best fit to the users' functional requirements. It is because cost planning and value engineering techniques follow this design process that they can be used to optimise design solutions to the client's requirements.

BCIS

In 1961 RICS launched the Building Cost Information Service (BCIS) to exchange data in elemental form for the benefit of the profession. The BCIS database of elemental cost analyses is now available over the internet, and is being utilised by a growing number of surveyors.

The main benefits of using BCIS are:

• standardised format of reporting, controlled by a wealth of experience at BCIS, that may then be adjusted to the users’ bespoke format;
• potentially an additional number of analyses that the user can include to complement their existing information base;
• the information is provided on a number of different levels - £/m2, £/unit, elemental £/m2, elemental unit quantities; and
• access to the latest indices and forecasts for growth (we hope) in the UK Construction industry.