FACULTY OF BUILT ENVIRONMENT AND DESIGN

DEPARTMENT OF REAL ESTATE, CONSTRUCTION MANAGEMENT

AND

QUANTITY SURVEYING

BACHELOR OF QUANTITY SURVEYING

Group 1

BQS 402: COST PLANNING AND COST CONTROL

2022
Group members

1. Bore Emmanuel Kipkirui - B66/0671/2018

2. Murkomen Cynthia Jemosop- B66/0674/2018
3. Samali Michele Chemariach - B66/132073/2018
4. Kevin kimuyu Mutinda - B66/0676/2018
5. Cheromoi Vanessa Chebet - B66/132456/2018
6. Ian Otieno - B66/0677/2018
7. Mukiri Clifford Gathecha - B66/0644/2018
8. Osongo Warren Omondi - B66/0660/2018
9. Binott Kiprop - B66/130850/2018
10. Wanjiku Dennis Waithaka - B66/0675/2018
11. Njuguna Njenga - B66/130697/2018
12. Kamau Alex Kambo - B66/0643/2018
13. Howard Ouma - B66/130455/2018
14. Musau Kimwele - B66/1819/2018
15. Kitonga Julius – B66/0652/2018
16. Joseph Mbuthia - B66/0658/2018
17. Diana Wambura - B66/132055/2018
18. Pascal Kipkelwon - B66/133699/2018
19. Chris Ngaira - B66/0664/2018
Abstract

Question: Prepare and contrast the cost plan of a 5-star hotel vis a vis a hospital. Using relevant
examples, prepare the financial statement and cash flow projections for each of the projects.
This paper compares a five-star hotel and hospital using their cost plans, financial statements and
cash flows. The area method was used to generate cost plans for the two different projects.
During the creation of cash flows, a 10% monthly discounting factor was assumed to estimate
the present value of money for the contract sum. The rates used in the cost plans wer fetched
from the IQSK handbook with February 2022 updated rates.
 COST PLANNING

INTRODUCTION
Cost planning involves the setting of an agreed budget, estimation of costs, and management of
actual and forecast costs against the budget. Project managers need to understand where costs
fall in their schedule to manage demand for resources. Planning cost can be fixed or variable
depending on the nature of the project. Cost control on the other hand collects actual costs and
collates then in a format for it to be compared with project budgets. It minimizes cost where
possible and reveals areas of cost overspend.
The following are the cost plans of proposed referral hospital and a five-star hotel both assumed
to be in Nairobi area and constructed in 2022.

PROPOSED REFERRAL HOSPITAL DEVELOPMENT, NAIROBI

Assumptions
1. Average area is 100,000m2
2. Cost per meter square is 81,860/=
3. External works =5% of building works
4. Contingency =10% of building works
5. Professional fees =15% of the building works
6. V.A.T = 16%
Calculations
Total cost
Total cost = cost per square meter x total project area.
=81,860/= × 100,000m2
= 8,186,000,000/=
Add External works
5
External works = ×8,186,000,000
100
= 409,300,000/=
Contingencies
10
Contingencies = × 8,186,000,000
100
= 818,600,000/=
Professional fees
 15
Professional fees = ×8,186,000,000
100
= 1,227,900,000/=
Total cost of building works
Total cost of building works = (8,186,000,000+409,300,000+818,600,000 + 1,227,900,000)
=10,641,800,000/=
Add VAT
16
VAT= ×10,641,800,000/= 1,702,688,000
100
GRAND TOTAL =10,641,840,000 +1,702,688,000
=12,344,488,000
Proposed cost for development of a referral hospital is. 12,344,488,000

PROPOSED 5 STAR HOTEL, NAIROBI

Assumptions
7. Average area is 100,000m2
8. Cost per m2 is 100,300/=
9. External works =5% of building works
10. Contingency =10% of building works
11. Professional fees =15% of the building works
12. V.A.T = 16%
Calculations
Total cost
Total cost = cost per square meter x total project area.
=100,300/= × 100,000m2
= 10,030,000,000/=
Add External works
5
External works = ×10,030,000,000
100
= 501,500,000/=
Contingencies
 10
Contingencies = × 10,030,000,000
100
= 1,003,000,000/=
Professional fees
15
Professional fees = ×10,030,000,000
100
= 1,504,500,000/=
Total cost of building works
Total cost of building works = (10,030,000,000+501,500,000+1,003,000,000 + 1,504,500,000)
=13,039,000,000/=
Add VAT
16
VAT= ×13,039,000,000/=
100
=2,086,240,000
= (13,039,000,000 +2,086,240,000)
=15,125,240,000/=
Proposed 5-star hotel costs around Kenyan shillings 15,125,240,000.
According to the IQSK February 2022 journal, the cost per square meter of putting up a 5-star
hotel in Nairobi is 100,300/= whereas that of a large referral hospital is 81,860/=
To come up with a cost plan for the two, we assumed an average area of 100,000m2.
The cost of putting up a five-star hotel per square meter is more than that of a referral hospital.
Thus, with all other necessary adjustments i.e., external works, contingencies, professional fees
and VAT, a five-star hotel goes for 15,125,240,000 compared to 12,344,488,000 for a referral
hospital.
In conclusion, when using initial cost to determine which project to put up, a referral hospital is
cheaper as compared to a five-star hotel

FINANCIAL STATEMENTS

As the works proceed on site, we will produce regular Financial Statements which keep the client
up to date with the estimated total final cost of the project. The report is generally in two parts,
the first considers the current position on how much money the client has already spent, and the
second the probable final cost of the project. The cost report is crucially important in that it can
forewarn the client of any future possible increases or decreases in the cost of the project.
Financial statements will generally include the following items:

 Quotations set against prime cost and provisional sums

 Variation orders issued to the main contractor
 Provisional quantities re-measurement
 Daywork sheets
 Contractors claims for delays/disruptions
 Other items pertinent to the contract

The adjustment of the above items will be either added to or deducted from the contract sum (less
contingencies). In addition, any fluctuations provision, where applicable to the contract should also
be included within the cost report. It is important that the clients forecast of total final cost includes all
possible items.
5* HOTEL

Financial statement: hotel

original contract sum 10,030,000,000.00

fluctuations 0.00
approved additional expenditure 5,095,240,000.00

current approved figure

contract sum 15,125,240,000.00
deduct: contingency 1,003,000,000.00
adjustments Savings (A) Extras(B)
1. pc sums
2. provisional sums…………………………..... 5,500,000
3. variations……………………………………….... 2,000,000
4. dayworks………………………………………….. 0.00
5. claims………………………………………………... 0.00

add a & b 3,500,000.00

Estimated final cost 17,595,240.00
net amount in hand/spent approved fig. 17,595,240.00

HOSPITAL
FINANCIAL STATEMENT FOR HOSPITAL
Original contract sum 12,344,488,000
Fluctuations 0
Approved additional expenditure 200,000,000
Sub total 12,544,488,000

Current Approved Figure

Contract Sum 12,544,488,000
Deduct Contingency 818,600,000
Sub total 11,725,888,000
Adjustments Savings (A) Extras (B)
PC Sums 2,000,000 0
Provisional Sums 1,000,000 0
Variations 0 450,000
Dayworks 0 1,000,000
Claims 0 650,000
Totals 3,000,000 2100000
Difference between A and B 900,000
Estimated Final Cost 11,724,988,000
Net Amount in Hand/Spent on Approved Figure 11,724,988,000
 CASH FLOWS
Introduction
A cash flow statement (or statement of cash flows), is a reporting mechanism used to show the
amount of cash (and cash equivalents) going in (cash inflow) and out (cash outflow) of a
business or project. Cash flow is the lifeblood of the construction industry and relates to the
incoming or outgoing of money to or from a company over a given period (usually monthly).
Cash flow forecast is generally used to inform the employer so that they know what and when
their monetary commitments under the contract will be.

Monthly cash flows during construction of a 5* hotel

Month Amount paid Monthly Discounting Time value payments

factor at 10%
Month 1 KES 1,012,524,000.00 0.90909 KES 920,475,443.16
Month 2 KES 980,450,000.00 0.82645 KES 810,292,902.50
Month 3 KES 870,320,000.00 0.75131 KES 653,880,119.20
Month 4 KES 458,670,000.00 0.68301 KES 313,276,196.70
Month 5 KES 340,588,000.00 0.62092 KES 211,477,900.96
Month 6 KES 543,456,000.00 0.56447 KES 306,764,608.32
Month 7 KES 760,000,000.00 0.51316 KES 390,001,600.00
Month 8 KES 870,000,000.00 0.46651 KES 405,863,700.00
Month 9 KES 910,400,000.00 0.4241 KES 386,100,640.00
Month 10 KES 1,050,396,000.00 0.38554 KES 404,969,673.84
Month 11 KES 1,560,000,000.00 0.35049 KES 546,764,400.00
Month 12 KES 2,068,786,000.00 0.31863 KES 659,177,283.18
Month 13 KES 1,212,680,000.00 0.28966 KES 351,264,888.80
Month 14 KES 560,000,000.00 0.26333 KES 147,464,800.00
Month 15 KES 645,000,000.00 0.23939 KES 154,406,550.00
Month 16 KES 523,000,000.00 0.21763 KES 113,820,490.00
Month 17 KES 438,970,000.00 0.19784 KES 86,845,824.80
Month 18 KES 320,000,000.00 0.17986 KES 57,555,200.00
Tender KES 15,125,240,000.00   KES 6,920,402,221.46
sum
5* Hotel construction
This is the client’s cash flow linked to the programme of activities. A monthly discounting factor
of 10% was assumed to find out the present value of the project.
The tender sum is Kshs. 15,125,240,000.00 but when the present value is calculated for the
payments till project completion, the present value reduces to Ksh. 6,920,402,221.46

Hospital
This is the client’s cash flow linked to the programme of activities. A monthly discounting factor
of 10% was assumed to find out the present value of the project.
Monthly cash flows during construction of a referral hospital
Month Amount paid Monthly Discounting Time value payments
factor at 10%
Month 1 KES 1,234,448,800.00 0.90909 KES 1,122,225,059.59
Month 2 KES 764,091,400.00 0.82645 KES 631,483,337.53
Month 3 KES 533,087,631.00 0.75131 KES 400,514,068.05
Month 4 KES 544,094,072.00 0.68301 KES 371,621,692.12
Month 5 KES 541,234,658.00 0.62092 KES 336,063,423.85
Month 6 KES 633,856,832.00 0.56447 KES 357,793,165.96
Month 7 KES 578,607,200.00 0.51316 KES 296,918,070.75
Month 8 KES 500,000,000.00 0.46651 KES 233,255,000.00
Month 9 KES 974,865,341.00 0.4241 KES 413,440,391.12
Month 10 KES 68,504,888.89 0.38554 KES 26,411,374.86
Month 11 KES 1,131,653,087.00 0.35049 KES 396,633,090.46
Month 12 KES 1,851,673,200.00 0.31863 KES 589,998,631.72
 Month 13 KES 850,874,000.00 0.28966 KES 246,464,162.84
Month 14 KES 458,943,213.00 0.26333 KES 120,853,516.28
Month 15 KES 450,067,000.00 0.23939 KES 107,741,539.13
Month 16 KES 430,987,000.00 0.21762 KES 93,791,390.94
Month 17 KES 390,074,983.11 0.19784 KES 77,172,434.66
Month 18 KES 407,424,694.00 0.17985 KES 73,275,331.22
Tender KES 12,344,488,000.00   KES 5,895,655,681.06
sum

The tender sum is Kshs. 12,344,488,000.00 but when the present value is calculated for the
payments till project completion, the present value reduces to Ksh. 5,895,655,681.06
For both projects, the present value of money is lower than the tender sum due to depreciation.
The contractor should ensure that materials are sourced early enough to avoid inflation during
the project execution period.
 References
Kirkham, R. (2014). Ferry and Brandon’s cost planning of buildings (9TH ed., pp. 59–74). John

Wiley & Sons.