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Overview

Generally, a client remembers the first estimate that he or she is provided with; as it is given at
the earliest stage with the least amount of information. As such, how is the surveyor able to
provide a reasonable estimate of the cost at this stage?

Conceptual cost planning is defined as the forecast of the cost at an early stage of the project
before any significant amount of information - either through a detailed design or specification -
is available.

The objective of conceptual cost planning is to advise the client on the anticipated cost while
they are contemplating the feasibility of a project. The purpose of a conceptual cost estimate is
to use various sources of data to produce a swift and reliable estimate, which is then used to
determine whether the development is taken further.

This estimate is prepared using either functions, e.g. ?/bed or ?/room, or an overall cost in
terms of ?/m2 for a typical building of the building category, before detailed drawings and
specifications become available.

As the design progresses and more details become available, these figures are replaced by
elemental ?/m2 and approximate quantities.

Necessaries of conceptual cost planning

Even in the early stages, it is vital to understand the characteristics of the proposed
development and be able to benchmark the costs against other similar projects. This is done
by reviewing the existing data, weighing up all the possible factors and adjusting them for the
new situation.

At this early stage of the cost planning process, developing knowledge of the situation is
paramount to ensure the accuracy and validity of the information used to compare against.

In applying functional costs, e.g. ?/pupil, the cost planner must understand the particular needs
of the project. For instance, allowing ?35,000/pupil for a primary school may not cover the
requirements of a Special Educational Needs (SEN) school. In this example, the larger area
required will increase the cost for an SEN pupil, which would in turn impact ?/pupil.

Elemental ?/m2 should also be considered, e.g. frame cost based on a ?/m2 gross internal
floor area (GIFA). The surveyor would use a sample of similar projects to provide the
breakdown. Typically, the relevant RICS New Rules of Measurement (NRM) sections would
be used.

The preparation of the estimate enables the surveyor to make quick and accurate changes,
without using too much time or too many resources as the design changes.

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Considerations to factor in

The surveyor will have to consider factors that will be fleshed out in greater detail as the
design becomes more detailed. The list includes, but isn?t limited to:

- physical factors ? these can be man-made, such as a confined city centre site, or
known underground problems such as utilities or underground metro systems.
Alternatively, they could be natural, such as rivers, soil conditions, etc.;
- external bodies ? legislation requirements, local planning decisions - this could
include fa?ade retention or maximum density;
- client requirements ? these will be better known and could either be very stringent,
with the need to meet certain criteria, e.g. plant location within the industrial unit, or
something that could be compromised on.

Construction costs

In order to undertake successful cost planning, the first step is to ensure that all the data
collected is of a consistent standard. For this to be successfully implemented a strategy needs
to be devised. It should be grounded in how the outputs, e.g. ?/functional unit, are reached
from the cost data source.

A methodology that will fit in with cost planning for quantity surveying should be devised. For
instance, will it match the standard NRM layout? At every stage the costs collected need to
adhere to a standardised collection process that can be checked to ensure accuracy and user
confidence.

The next step will be to decide how the data can be analysed and quantified, for it to be output
at the appropriate level of detail relevant to the cost stage required for the specific cost stage.

Inclusions and exclusions:

- Are the building costs (NRM group elements 1?7) to be separated from the
preliminaries, and overheads and profit? It is worth noting that the published BCIS
figures include these; however, if the practice has enough base data, they may
consider adding them on separately.
- With regards to property type inclusions and exclusions, what will be included in a
particular property type? For example, a hospital would have backup generators.
Data cloud centres would have a UPS as standard, but would a typical office have
one?
- What are defined as abnormals? Preparing a list highlighting common exclusions
will assist with this. How will these be treated? For instance, if a building has a
1.5m-deep raft foundation, is this typical of that type of building? Would replacing the
cost of the raft foundation with, say, a 450mm-deep slab foundation prove to be
more representative?
- Basements may be treated as an abnormal cost and removed from the standard
cost analysis prepared. However, given the potential importance of this element as a
cost driver, it may be identified and retained as a note, and kept for future cost
planning purposes.

Other costs to consider:

- construction contingency fund; at this stage a larger allowance should be included,

to take into consideration apportionment during the design development stage
- inflation during the development period
- there may be more than one party that contributes to the cost planning, such as a
letting agent providing sales values; these contributions are to ensure the client will

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have access to all the knowledge required to accurately consider the feasibility of
the development.

Aspects of 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

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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.

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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

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?/m2, elemental unit quantities; and

- access to the latest indices and forecasts for growth (we hope) in the UK
Construction industry.

BCIS continues to evolve, with the introduction in 2019 of a panel of leading cost consultants
to provide a consensus viewpoint on how they see tender prices changing.

Use of cost plans

The capital cost of a major scheme can be difficult to control. 'Pareto's Law', or the 80:20 rule,
applies in the design of most construction projects - by the time 20% of the design is complete,
80% of the costs are committed. The ability to control costs at the early stages of the design is
therefore essential.

Cost planning techniques can provide an 'order of costs' figure for a new construction project
based on previous, similar schemes, even before any sketch plans are available. Intelligent
guesswork and knowledge of a particular client will allow a professional to use suitable existing
data to come up with a rough and ready cost plan based on similar schemes.

The development of a detailed cost plan enables the total cost of a scheme to be controlled as
the design develops. As additional architectural and engineering information becomes
available, the cost plan can be progressively developed to incorporate this data. As more
design information is known, the selection of historic data can be carried out more efficiently,
while the individual elements can be manipulated to allow for different specifications and to
produce progressively more detailed cost targets. Successful elemental cost planning enables
the cost of a scheme to be controlled, in order to stay within budget. Once the cost plan has
been agreed, it is important to remain within the cost limit for each element.

Exceeding the cost plan should only be sanctioned if alternative design solutions for that
element have been explored and no way has been found to stay within the agreed limit. Where
the cost limit for an element has to be exceeded, there is the possibility of diverting resources
from another element that is under budget in order to stay within the overall cost limit. In
exceptional circumstances, if the cost limit of an element will be exceeded, extra money will
need to be signed off by the client.

Cost analysis library

The establishment of a library of cost analyses is an integral part of cost planning.

Where design details are sketchy in the early stages of a project, elemental costs for similar
buildings give an early view on the likely costs of elements of the new scheme. This enables
the cost planner to indicate the assumptions on which the estimate has been based. The
importance of sticking rigidly to definitions of elements is obvious here, as the user can be sure
that the costs of the different elements have been built up in the same way and can be
transported to the new scheme.

Elemental cost breakdowns of previous schemes provide the user with the best sources of
data and give an immediate framework from which to work. In compiling a new cost plan, the
first step is to interrogate the database in order to access historic schemes. These should be

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as similar as possible to the proposed scheme, or may be used to define the assumptions
made by the cost planner. Statistically, it has been shown that more accurate cost plans are
produced if based on information from a number of projects that are similarto the new
scheme, rather than a single scheme that is identical.

The use of several projects avoids a situation where the vagaries of pricing of one project
outweigh the advantages of similarity of design. Various sources are available, listed in order
of importance:

1. historic cost data from schemes on which the surveyor has personally
been involved - personal involvement means that any vagaries of pricing will be
known in advance and can be allowed for in considering the costs;
2. schemes where there is personal involvement within a group - personal
contact can be made with the personnel involved;
3. other schemes within the same company - allow a closer interface with the
personnel involved; many practices will use either their own bespoke scheme or
an off-the-shelf library for the storage and analysis of their projects;
4. BCIS - an online database service , part of RICS , and has provided elemental
cost analyses of building projects for around 50 years. The analyses are in
standard format and are provided by subscribers to the service;
5. other external sources - many of the construction journals publish studies on
new and recently completed construction projects. These frequently contain
elemental cost breakdowns, which can be used for future cost planning exercises
if no other data is available.

The use of the standard definition is important, as it allows cost data to be used from a number
of different schemes and permits a like-for-like comparison of elements.

Brief design notes accompanying the elemental cost breakdown enable a value judgment to
be made as to how appropriate a particular element is for use in the cost planning process.

Updating historical costs

Historical data will need to be updated both for time and location. It is of paramount importance
that all data is recorded with both the date of the cost data and the location of the build.
These are the first steps for adjusting the historical information for comparison to the new
development.

A series of tender price indices are prepared by the BCIS, the Department for Business
Enterprise and Regulatory Reform (formerly the DTI) and a number of other industry sources
in order to update historic data from the tender date to the present, or to project ahead to a
future date.

The BCIS all-in TPI (Tender Price Index) is probably the best known and most widely used TPI
in the UK construction industry. It forecasts the projected tender price for the next 5 years, as
well as correcting itself with tenders provided by the industry. During this period, it marks these
adjustments as forecasted or provisional and, due to a small sample size, fluctuations may
occur. Therefore, care is advised when using the BCIS TPI as the sole source of data.

Similarly, regional indices are available and can be used to adjust costs from one location to
another.

Remember that sometimes the sample size for the indices may not be robust enough for a
totally accurate prediction and the surveyor should make the final call for the index level to be

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used.

Fortunately, computer programs are now available to carry out most of this updating process
more or less automatically. These programs can also provide a snapshot of current prices and
enable 'what if' scenarios to be worked through.

Other comparisons

The size of the project is a major factor when deciding which projects to benchmark against;
projects should be of similar size so that the costs are not distorted by use of projects either
too large or small.

Secondary considerations include the type of construction; special features such as the need
for piling, deep basements, and likely specification levels are worth noting, which may assist in
the identification of suitable projects and the weeding out of inappropriate projects. At this
stage the amount of information may limit the ability to adjust for these requirements
depending on the experience of the surveyor.

Older projects may be constructed to older Building Regulations, such as Part L and the
regulations affecting disabled access, and these should be factored in as well.

Not all buildings are the same. In considering the data to use, Central London offices are not
comparable to regional city centre offices. While some cities such as Birmingham or
Manchester are seeing the introduction of the ?London office? standard, it would be unwise to
consider these for smaller regional centres.

Electronic communication

Most of the software systems for quantity surveyors will automatically produce cost analyses in
Standard Form of Cost Analysis (SFCA) format, and many firms will have their own data-banks
of cost analyses held electronically. BCIS has developed an XML schema for elemental cost
analyses, which allows analyses to be exchanged between different systems.

This development will make it easier to use a mixture of in-house analyses and those stored in
remote databases, be these from BCIS, a client or another consultant. Details of the XML
scheme are available from BCIS.

The basic principles of cost planning are unlikely to change in the future. However, rapid
changes in communications technology may well affect the availability of data and the
transparency of the process.

The data library built up by the surveyor will include not just the costs for similar projects but
also the rates to apply as extra cover costs for anticipated factors. These will be treated with
the ?soft fee? treatment given the experience of the surveyor where he or she will take the
cost and apply a rate that he or she feels is in-line with the additional factors.

One of the main failings is that these rates are usually retained in the personal library or head
of the individual. They may not be recorded in an accessible format for others to use. This
could have a detrimental effect on the accuracy and time spent by others if they become
involved at the conceptual cost planning stage.

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Stages of preparing a conceptual cost plan

As previously mentioned, a conceptual cost plan is used during the early stages of the process
when detailed information is limited. It is used to quickly determine the feasibility of a project or
select from several alternatives.

To develop the conceptual cost plan, the following should be available:

- a cost analysis from several similar buildings where comparative information is

available; the buildings chosen should be of a suitable floor area range with similar
specifications. The analysis should be adjusted for date and location before
comparing
- an outline specification for the building that the conceptual cost plan relates to and
- any available draft plans and elevations for the scheme.

In order to prepare the estimate, the following approaches can be undertaken:

1. Use cost per m2:

- At an early stage, it is possible that there is only a rough idea of the
size of the project, say a 200,000m2 distribution centre.
- Therefore, the cost would be area x ?/m2, say 200,000 x ?700/m2.

2. Use cost per functional unit:

- BCIS has produced a list of the key functional units.
- With this method, cost is calculated as ?/functional unit x number of
functional unit. Therefore, a 500-pupil school would be costed as 500
pupils x ?25,000 per pupil.

3. Selecting the appropriate value:

- The surveyor should choose the value to report on; this will usually be
between the mean, median or using the result of a weighted solution
based on the data.
- The use of regression analysis or best fit lines can be incorporated into
the selection progress to determine the best fit solution.

At this point, consider making the following adjustments once the base cost has been
determined:

- allowance for external works

- allowances for abnormals, design enhancements, other stated client inclusions,
complexity of the design and
- market conditions.

The following are other development costs, mainly considered ?below the line? costs that will
be included as part of the cost plan prepared by the QS.

- professional fees
- planning and Building Regulations fees
- insurance
- legal and agent fees
- development contributions and
- funding costs.

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Example: preparing an early cost plan

Step 1: selecting the data

The client has asked the QS for the construction cost of a new 1,200-pupil school. At this initial
stage, the QS identifies the sources of available information. For this example, the QS has
access to data on 11 projects, either from internal or external sources, that they could use.

The QS draws up an initial list of projects for comparison.

Project Location Base date Total GIA No. pupils Pupil area ?/pupil
building m2/GIA
cost ?/m2
GIA

Project 1 Yorkshire 3Q 2019 ?10,720,0 5,050 780 6.47 ?13,800

00

Project 2 West 2Q 2016 ?13,600,0 9,700 1,450 6.69 ?9,400

Midlands 00

Project 3 Wales 3Q 2018 ?13,480,0 8,400 1,250 6.72 ?10,800

00

Project 4 North 3Q 2018 ?11,570,0 7,100 820 8.66 ?14,200

West 00

Project 5 Outer 4Q 2012 ?21,530,0 9,225 1,200 7.69 ?18,000

London 00

Project 6 South 3Q 2018 ?17,110,0 9,400 1,220 7.70 ?14,100

East 00

Project 7 South 2Q 2016 ?15,540,0 7,300 900 8.11 ?17,300

West 00

Project 8 Scotland 1Q 2015 ?26,000,0 14,500 1,750 8.29 ?14,900

00

Project 9 West 1Q 2017 ?22,950,0 15,000 1,500 10.00 ?15,300

Midlands 00

800

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Project 11 South 1Q 2015 ?15,150,0 7,740 900 8.60 ?16,900

East 00

Average 9,590 1,143 8.39 ?15,300

Total building cost ?/m2 GIA includes on-costs but excludes external works.

The QS can exclude some projects and use their knowledge to amend others:

- Project 5 was deemed to be too old for inclusion.

- Project 10 is excluded since the area per pupil is considerably more than the others.

Step 2: adjusting the data

Location factors are applied to ensure that the chosen benchmark figures are adjusted to
constant date and locations. In this case, the project calls for a location of West Midlands, with
a start on site date of Q1 2021.

Project Location Base GIA m2 Adjusted Adjusted No. Adjusted Pupil

date cost cost ?/m pupils ?/pupil area m2
2GIA /GIA

Project 1 Yorkshir 3Q 2019 5,050 ?11,440, ?2,270 780 ?14,700 6.47

e 000

Project 2 West 2Q 2016 9,700 ?11,730, ?1,210 1,450 ?8,100 6.69

Midlands 000

Project 3 Wales 3Q 2018 8,400 ?13,380, ?1,600 1,250 ?10,750 6.72

000

Project 4 North 3Q 2018 7,100 ?12,630, ?1,780 820 ?15,450 8.66

West 000

Project 6 South 3Q 2018 9,400 ?20,000, ?2,130 1,220 ?16,400 7.70

East 000

Project 7 South 2Q 2016 7,300 ?15,030, ?2,060 900 ?16,700 8.11

West 000

Project 8 Scotland 1Q 2015 14,500 ?1,480 1,750 ?12,250 8.29

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Project 9 West 1Q 2017 15,000 ?21,130, ?1,410 1,500 ?14,100 10.00

Midlands 000

Project South 1Q 2015 7,740 ?14,360, ?1,860 900 ?16,000 8.60

11 East 000

Average ?1,775 1,174 ?13,900 7.92

Step 3: additional factors to consider

At this stage, the QS will include external works and abnormals, as well as applying the
environmental and client factors mentioned in Considerations to factor in under Necessaries of
conceptual cost planning .

In this exercise, we will adopt the cost ?/pupil and use the average uplifted cost of ?13,900.

1200 pupils x ?13,900 ?16,680,000

Allowance for external works, say ?1,000,000

Contingencies for risk (10%) ?1,770,00

Allowance for abnormals/site No

conditions/enhancements

Total construction cost ?19,500,000

Other development costs ?2,000,000

Total cost ?21,500,000

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