Cost Management / Estimating
The cost manager has the responsibility for providing accurate and timely cost advice throughout the duration of a project to a variety of stake holders including the client and architect at various stages in the pre-contract and post-contract costing process.
Cost management should be a continuous process, not something that is taken up and put down from time to time.
The Royal Institution of Chartered Surveyor’s New Rules of Measurement 1 (NRM1) has been described as the cornerstone of good cost management of construction projects – enabling more effective and accurate cost advice to be given to clients and other project team members, as well as facilitating better cost control.
Although written primarily for the preparation of order of cost estimates and cost plans, the rules can be used when preparing approximate estimates. In addition, the rules can be used as a basis for capturing historical cost data in the form required for order of cost estimates and elemental cost plans, thereby completing the cost management cycle.
Providing pre-contract cost advice is an iterative process the accuracy of which should become more reliable as the design developes. Even so, when determining the feasibility of a project there is pressure to produce a reliable first estimate of cost based on somewhat sketchy information.
Order of cost estimate
Formal cost plan 1
Formal cost plan 2
Formal cost plan 3
RIBA Plan of work 2020
The RIBA Plan of Work organises the process of briefing, designing, delivering, maintaining, operating and using a building into eight stages. During stages 0 – 3 the process used is cost planning; after Stage 3 there should be no major changes in design. Stages 4 – 7 uses cost control techniques to ensure that the final cost does not exceed the early cost estimate.
Pre-contract cost advice: RIBA Plan of work 2020 Stages 0 - 3
There are several approaches for the preparation of initial cost advice. These include;
The unit method – applying a cost to a unit of function.
The m2 method - calculating the gross internal floor area and applying an appropriate rate.
Elemental – the most detailed but needs the most information.
Approximate quantities – the most accurate but again needs detail.
Post-contract advice: RIBA Plan of work 2020 Stages 4 - 7
Just because work starts on site it does not mean that cost management can take a back seat. There are just as many opportunities for costs to spiral out of control during post-contract stages as there are in the pre-contract phase, for example;
Poor contractor performance
Cost data: Rubbish in = Rubbish out!
The accuracy of cost advice is dependent on the quality of the cost data on which that advice is based.
What sources of cost data are available and how reliable are they?
How is cost data adapted?
How should an estimate be presented?
How should a cost plan be prepared?
The client can be kept up to date with the financial status of a project whilst in progress with monthly financial statements reflecting the anticipated final cost.
Estimating; precision guesswork based on unreliable data provided by those with questionable knowledge.
Estimating, like measurement is one of the core skills of construction professionals and success as an estimator relies, among other things, on a sound knowledge of the relevant technologies.
However, over the recent years when main contractors have become, in the main, managing contractors relying heavily if not totally on sub-contractors to price work sections, estimating from basic principles, like measurement, has tended to be left out of university courses and training programmes.
Not only are estimating skills required for preparing bids, but also during the post-contract phase they are essential when negotiating rates and prices for settling final accounts and claims.
When times are hard and work scarce, then the estimator’s role becomes even more crucial as they are the people within a contracting organisation who win work and keep the cash flow flowing.
In 2019 major UK contractors declared profit margins of less than 1% and with such little wiggle room it is even more important for estimating to be accurate and a true reflection of the cost of the works.
Estimators are to be found in a wide range of organisations across the building, civil engineering and mechanical and electrical sectors working for main contractors, sub-contractors and component manufactures.
Fifty years or so ago the majority of work was based on a fully detailed bill of quantities, prepared by a quantity surveyor employed by the client, typically the tender would have been based on a detailed bill of quantities.
In the modern construction market bids are now based on a variety of formats; including work packages, cost plans and drawings and specification requiring contractors and sub-contractors to be flexible in their approaches to formulating a bid and identifying risk.
Duncan Cartlidge Online gives 24/7 access to a series of clear video tutorials from the author of the best-selling pocketbooks.
Each video explains the process of producing estimates and cost plans from basic principles based on the Building Cost Information Service guidance. The advantages and disadvantages of the various approaches to cost advice at a variety of stages is explained as well as how to prepare approximate quantities.
Videos demonstrate how to approach resource estimating from basic principles to the preparation of a unit rate for a range of work sections including the approach to calculating preliminary and overhead costs.
Extensive experience both in practice and in education allows Duncan Cartlidge to address the common problems encountered when giving cost advice and unit rate estimating. Each video contains a set of self-assessment questions to gauge progress and a question and answer facility will be available to subscribers.