PRINCIPLES &

TECHNIQUES OF COST
PLANNING
RMK 363 – CONSTRUCTION ECONOMICS
 Introduction to Cost Planning Process
• CP as a process is difficult to define concisely as it involves a variety of
procedures and techniques used concurrently by the QS or building
economics or cost consultant.

• In practical sense, the CP starts with the development of a figure (or

cost) to allow client to decide whether the project is feasible.

• The feasibility estimate is usually calculated on a unit cost method,

refine using the elemental method, component elements and sub-
elements.

• The elemental method is a detailed cost plan which is broken down into
a series of elements. Initially, the elemental cost plan will simply be the
total construction cost for the project divided into elements on a
percentage basis. As the design becomes more detailed however, the
elemental cost plan will be 'measured', based on the actual quantities of
work and materials that will be required to construct the project.
 Introduction to Cost Planning Process
• The elemental cost plan should be prepared in a spreadsheet
format that is easy to interrogate and import into costing software
and should adopt a standard approach.

• The elemental cost plan should set out any assumptions that have
been made, should identify any exclusions agreed with
the client and should present an outline assessment of whole life
costs. It might also include a list of abnormal or non-standard items,
to help inform any value management exercises.

• Cost planning is a system that requires total coordination of the

project from its commencement to completion.
 Introduction to Cost Planning Process

• It involved a systematic framework procedure and demand high

commitment from the design team to cooperate with the QS or cost
consultant to ensure that the objectives in terms of costs, time and
quality are achieved.

• The cost planning process can be regarded as a means of getting an

optimum result that offers the best value for money or saving and is
economical.

• Without cost planning, an analysis has no scientific basic and thus

all estimates are at risk unless proven otherwise and with cost
planning errors can be minimized.
 Introduction to Cost Planning Process

• Cost plans are generally prepared by cost consultants (or quantity surveyors).
They evolve through the life of the project, developing in detail and accuracy as
more information becomes available about the nature of the design, and then
actual prices are provided by specialist contractors, contractors and suppliers.

• They range from very early initial cost appraisals through to tender pricing
documents and the final account:

o Initial cost appraisals (studies of options prepared during the feasibility study stage).
o Elemental cost plan (prepared during the project brief stage and carried through
to detailed design).
o Approximate quantities cost plan (from the end of detailed design through
to tender).
o Pre-tender estimate (prepared alongside tender documentation).
o Contract sum (agreed with the contractor during the tender period and adjusted
during the construction period).
o Contract sum analysis (a break down of the contract sum prepared by
the contractor on design and build projects).
o Final account (agreed during the defects liability period).
 Objective of Cost Planning
• The client receives value of money, not necessarily lower than the
initial cost. There must be a balance between quality, usage suitability,
initial cost and life cycle costing for the entire span of the element.

• A reasonable expenditure between sections of the building by relating

the design and the specification to the client’s budget so that more
balance design is obtained.

• To make clients and designers aware of the cost consequences of their

proposals.

• To enable designers to arrive at practical and balanced designs within

budget.

• To ensure that the overall expenditure is within the amount agreed by

the client. The tender that is received should not be higher than the
amount agreed by the client.
 Principles of Cost Planning

• There is a standard framework reference available for each identified part

of the building(example WBLFF, structural works, etc). The purpose are to
enable:

- The performance characteristics to be related to each reference.

- The cost to be distributed in a balanced way throughout the building.
- The analysis of previous projects be classified in the same manner.

• The cost planning can be adjusted to design requirement.

• It allows the costs checked as the design develops with the amount
allocated.

• It allows the designer to take necessary measures or actions before any

decision on the final design is made.

• It takes into account contingencies cost and design reserve.

 The Need for Cost Control

• Pace of development in building is increasing

• Clients’ requirements are becoming more complex

• Client organisations are becoming larger

• The use of new techniques and materials is increasing

 Advantages of Cost Planning
• The tender value will be either close to or similar to the client’s
estimate. CP approach quite similar actual pricing.

• Since there is a checking system on the cost, there is possibility that

less changes will be made to the BQ. Discussions among designers
can be made before the production of the final design. This will
definitely save time in making adjustment to any changes to the cost
and design.

• The effectiveness of cost and value for money can be achieved with
cost planning

• A balanced expenditure distribution may produce a more

rationalized design.
 Advantages of Cost Planning (Cont’d)

• Cost consideration will be given more attention since the cost

consultant or QS is involved in the early stage of the design
process.

• The BQ can be prepared more easily since the cost consultant

or QS is already familiar with or skilful in the project and thus
has clear understanding of what is to be achieved by a designer.

• Cost planning provides basic information on cost comparison

between different project. Can be used as historical data for
reference in future cost plan.
 Disadvantages of Cost Planning

• It requires a lot of preparation at the early stage of the design

process.

• The designers may have some limitation in their work style. They
need to consider requirement for ease of CP production.

• The cost consultant or QS need to be equipped with past

experience and knowledge pertaining to cost and factors
influencing the cost.

• Both designer and cost consultant / QS are involved with a lot

more work at the design stage as compared to when no cost
planning is used.
 Characteristics of a Good Cost Planning System
• Ensure that the tender figure is as close as possible to the
first estimate, or any likely difference is anticipated and
within acceptable range.

• Ensure that the funds available for the projects are

allocated effectively and economically to the various
elements and sub-elements.

• Always involve the measurement and pricing of

approximate quantities at some stages of the process –
keep costs within range at all times.

• Aim to achieve good value for the client.

 Phases of Pre-construction Cost Control

Cost Control Stages

1st – Inception Stage (Within Brief Stage)
2nd – Feasibility Stage (Within Brief Stage)
3rd – Outline Proposals Stage
4th – Sketch Design Stage
5th – Tender Document Stage

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 1st – Inception Stage (Within Brief Stage)
• Decision to have a building

• No design team

• Client organisation set up for briefing

• Architect or project manager appointed

• No cost control function

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 2nd – Feasibility Stage (Within Brief Stage)

• Data available at this stage:

- Function of building
- Number of functional units/amount of floor space required
- Standard of accommodation required

• Design team engaged to appraise project - should it proceed?

• Cost control system is set up to:

– Establish realistic first estimate
– Allocate estimate among the elements

• Estimated costs are compared with the anticipated revenue –

important especially in commercial projects.
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 3rd – Outline Proposals Stage
• The objective is to isolate the optimum design solutions that
will satisfy the brief

• Data available at this stage:

- Site plan
- Function of building
- Standard of accommodation required
- Dimensioned outline of building
- Number of floors proposed

• Still insufficient detail for individual cost targets.

• Cost allocations are therefore made to Element Groups

• First cost estimate is made based on brief 16

 4th – Sketch Design Stage
• Data available at this stage:
- Complete brief
- Site and soil information
- Sketch plans with location of all walls, doors, windows, stairs,
toilets and services
- Elevations
- Significant plan dimensions and heights

• Second cost estimate for the project based on

detailed sketch plans

• Cost limit for the project must not be exceeded without

major change of scope of the works

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 5th – Tender Document Stage
• Objectives:
- To ensure that the completed design is contained within the
cost limit set at the sketch design stage; and
- within the budget set at the Brief Stage!!

• Data available at this stage:

- Specification of materials
- Construction details and Sections
- Schedules of finishes, doors and windows
 5th – Tender Document Stage (Cont’d)
• Cost Planning activities:

- Carrying out progressive cost checks on all elements

- Comparing cost checks with cost plan and reporting
variances
- Identifying cost implications of developing design
- Identifying possible cost savings
- Minimising abortive design time

• Should cost checking of an element reveals a discrepancy:

- Change design  If the cost check is significantly above the

cost target
- Balance for other items (where necessary)  If the cost
check is significantly below the cost target.
 Cost Plans: Allowances and Contingencies
• Locality allowance
(difference from capital city costs)

• Design contingency
(incomplete design)

• Site wage allowance

(award loading for a type or size of project)

• Contract contingency
(unknowns occurring during construction)

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Cost Planning: Comparison of Stages