Construction Cost Planning and Cost Control

Cost planning and cost control of construction projects is not a new technique, it has been in use for many years.

·         Costing means applying prices to schedules of items of labour and materials in order to obtain an approximation of the cost of a construction project.

·         Cost planning and cost control does not only determine the probable cost of a project but is also to control the design development throughout the project, and to provide the client with value for money.

·         It can also dictate the nature of the most important characteristic of the embryo design, the plan shape, storey height, type of finishes and so on.

·         Time must be spent in the early stages of design sequence for cost planning so that careful cost control by monitoring of variations can be operated during construction stage to the settlement of account to be effective.

Clients’ requirement for an accurate forecast of the overall cost is due to:-

·         Resources such as land and materials becoming scarce and expensive.

·         Modern buildings becoming more complex,

·         Fluctuation in labour and material cost etc.

Cost Analysis

The analysis and presentation of actual costs of a project to facilitate cost planning. It is a systematic breakdown of cost data according to the element for cost so as to facilitate examination. It is a record of how the cost has been distributed over the elements of a project - It includes a brief description of the overall nature of the project and specification notes on the general level of finishes, and so on.

Cost Planning is the method of controlling the cost of a project, within a predetermined sum, during the design process and includes the preparation of the cost plan as well as the subsequent stages of cost checking.

Ø  Cost planning are techniques for arriving at a cost plan or cost limit. It is a statement of the intended cost to spend on each element of a proposed project within a total sum and in relation to a defined standard of quality.

Ø  The allowances set against each element are cost targets.

Cost plan is prepared by finding a cost analysis of a similar project to the one under consideration, and by studying how the cost was allocated in the previous project, in order to prepare an estimate for the proposed scheme. However, the cost information cannot be used directly from the cost analysis, and some degree of modification will have to be made. These modifications are usually for differences in:

·         Price level

·         Quantity

·         Finishes and standards

Cost Control: Cost control is a generic term embracing all methods of controlling the cost of a project throughout its various stages from inception to completion.

§  Process of cost checking the estimated cost of each element against the target set in the cost plan.

§  Cost control is a process to hold expenditure within the budget by monitoring and appraisal of the cost performance (Clark and Lorenzoni, 1997).

Cost control can be divided into two major areas:

§  The control of cost during the design stages, so that the proposals under design fall within the original estimates for the scheme.

§  The control of cost, principally by the contractor, once the work of construction has commenced. This the contractor’s attempt to keep the costs incurred while carrying out the work within the quoted amounts –This is what will be paid to them by the client.

Historical Background of Cost Control and Planning

Cost control is a logical extension of a process which has continued since the days of the eighteenth century measurers employed to measure and value the cost of work after it was both designed and executed. The measurers were involved, after the building was erected, to measure and value and to argue with the client and architect on behalf of groups of tradesmen.

The measurers were later brought together under a main contractor system which became fully operative in the early nineteenth century.  This involved price competition before construction.

The measurers soon realised that a new function was required and that they possessed the necessary skills to undertake it. It was in response to this situation that they developed the skills of pre measuring, of taking off quantities from the drawings before construction started and assembling them in a bill of quantities to provide a rational basis for competition - Hence the development of the quantity surveying profession. Under this system, work was measured and priced before execution, but after design.

The next development was the introduction of approximate estimating techniques which attempted to give a forecast of the probable tender figure. However, the basis of computation of this method left much to be desired. Subsequently, the estimators realized that by the use of cost planning the probable cost could be reasonably accurately determined early in the design process.

Cost planning began to evolve as a process of pre costing, attempting to represent the total picture of anticipated cost in a way which provided a clear statement of the issues by:

§  Isolating the courses of action and their relative costs

§  Providing a guide to decision making.

Over the years, construction projects have become increasingly complex because:

1.       Many specialist skills have become associated with their design

2.      Clients require, and are entitled to expect, positive assurance that their money is being spent wisely and well.

3.      For public sector the nation needs to use national resources to their optimum effectiveness.

Cost Planning and Cost Control in the Construction industry today

The birth of Quantity surveyor profession totally changed the construction cost control process. Currently, the process is almost entirely taken over by quantity surveyors trained in this particular field.

Roles of Quantity Surveyor in construction cost control

The quantity surveyor has a vital role to play as financial adviser to the building industry

1.      Producing economically viable solutions to many kinds of building, engineering and development problems

2.      Preparing budget estimates

3.      Cost planning

4.      Appraisal of alternative cost solutions

5.      Procurement arrangements and tendering procedures

6.      Preparing contract and subcontract documents

7.      Advising on the most satisfactory financial relationships between contractor and client

8.      Price evaluation of building and associated engineering works

9.      Cost checking

10.  Forecasting anticipated final costs

11.  Settlement of contractors’ claims

12.  Cost control

13.  Cost analysis

14.  Life cycle costing and cost benefit studies

Importance of Cost Control

It is vital to operate an effective cost control procedure during the design stage of a project to:

1.      Keep the total cost of the scheme within the client’s budget.

2.      Reduce the amount of unproductive capital or borrowed money as clients don't have sufficient time for the redesign of schemes upon the receipt of excessively high tenders.