Design Economics & Cost Planning

Question 1

What is an order of cost estimate?

Answer 1

• Order of cost estimate is prepared early in the design stage between RIBA Stage 0-2
• This is where design information is limited and allows an estimate to be prepared on a cost per m2 or functional unit basis

Question 2

What is a cost plan?

Answer 2

• A cost plan is typically produced from RIBA Work stage 2 onwards.
• As the design progresses more information is available to breakdown an initial cost estimate elementally into each component
• For example the sub-structure, superstructure, services and professional fees into an elemental cost plan format

Question 3

What is the difference between cost and price?

Answer 3

• Cost is total for labour, plant, materials and management deployed for a specific activity
• Price is the amount a purchaser or client will pay for a item or product and is made of the cost plus the main contractors profit margin

Question 4

How do you proceed if the cost plan exceeds the project budget?

Answer 4

• I would first analyse the costs to identify any elements of work that are abnormally high against the order of cost estimate
• Once the source of the overspend is identified I would then look to propose value engineering options to the client and design team to bring the forecast back in line with the project budget

Question 5

What is buildability?

Answer 5

• Buildability is harnessing the contractors knowledge and experience during the design stage
• This is used to generate ideas for effective and efficient methods of construction

Question 6

What are the advantages of buildability?

Answer 6

• Buildability can lead to more efficient programming of construction works
• Reduced capital and life cycle costs of the building can be obtained

Question 7

What is the wall to floor ratio?

Answer 7

• This ratio is used to show the cost efficiency of a building by looking at the relationship between the wall area and floor area
• The lower the ratio the cheaper the building is to construct as there is less external envelope in comparison to the floor area

Question 8

what is the most efficient shape?

Answer 8

• In theory a building with a circular floor plate would be most efficient as there is less wall to floor area
• However a circular floor plate has a poor lettable area and is often difficult to fitout therefore a square floor plate is considered to be the most efficient shape

Question 9

How would you prepare an estimate for M&E works?

Answer 9

• I would ask a M&E surveyor to undertake the estimate
• For feasibility estimates the M&E amount would be included in the m2 or functional unit rate

Question 10

what is the section 106 agreement?

Answer 10

• This is the agreements between local authorities and developers that are negotiated in the context of granting planning consent

Question 11

What is construction to shell and core?

Answer 11

• Basic structure, services and envelope of a building
• This normally includes the fitout of landlord areas for example the reception, toilets, lifts and stair cores

Question 12

What is a CAT A fitout?

Answer 12

• A Cat A fit out will provide a basic level of finish above what is provided in a Shell and Core
• For example suspended ceiling tiles, raised floors, and basic mechanical electrical services

Question 13

What is a CAT B fitout?

Answer 13

• A CAT B fitout overlays the CAT A provision with bespoke elements that are specific to the needs of the tenant to enable them to occupy the space
• For example this would include interior partitions, data cabling, artwork and branding

Question 14

Where could you find the definitions for these three types of Fitouts?

Answer 14

• Definitions can be found within the BCO fitout guide

Question 15

What is BWIC?

Answer 15

• BWIC stands for builders work in connection and is usually set as a percentage of the services cost
• This accounts for the main contractor to perform any drilling, fixing, or penetrations to enable services installation

Question 16

What is the purpose of an order of cost estimate?

Answer 16

• An OCO is used to establish if the proposed building project is affordable, and if so establish a realistic cost limit for the client

Question 17

What is a functional unit?

Answer 17

• Is a unit of measurement that considers the prime use of the building
• For example in a retail estimate the functional unit would be the net lettable space.

Question 18

Where would you get the rates for a preliminary estimate?

Answer 18

• Previous similar project and historical cost data such as tender submissions or a contract sum analysis
• Other sources would include pricing books such as Spon’s or the BCIS.

Question 19

What information do you need to be able to carry out an order of cost estimate?

Answer 19

1. Building location
2. Floor area or functional unit
3. Client’s high level requirements
4. Budget constraints
5. Site conditions
6. Programme
7. Procurement and contract strategy

Question 20

What is the purpose of a cost plan?

Answer 20

• Used by a cost consultant to control the development of design
• It identifies the clients agreed cost limit and how the money is allocated between each element of the building.

Question 21

What are the principal components of a cost plan?

Answer 21

• Construction costs
• Preliminaries
• Contractor OH&P
• Contingency
• Inflation
• Assumptions and exclusions

Question 22

What is usually excluded from a cost estimate?

Answer 22

• VAT
• FF&E
• Inflation
• Asbestos
• Section 106 agreement

Question 23

Why is VAT excluded?

Answer 23

• VAT is excluded because each client will occur different levels
• I would not be in a position to know the correct rate unless informed of it

Question 24

What is contingency?

Answer 24

• Contingency is a sum included within the estimate to cover unknown expenses or unmitigated risks during a project

Question 25

How is contingency assessed?

Answer 25

• During the early design stages a contingency allowance can be included as an overall percentage of the cost estimate around 10%
• As the design develops a risk register can be compiled with probability and cost impact assigned to each item which can then form the total project contingency.

Question 26

How do you take account of inflation when preparing a cost estimate?

Answer 26

• I take into account inflation through use of the tender price indices and include adjustments for construction inflation and tender price inflation

Question 27

What time period would Construction Inflation be included for?

Answer 27

• I would allow for construction inflation from the anticipated start of the project to the mid-way point of the project.

Question 28

What time period would Tender Price Inflation be included for?

Answer 28

• I would allow for tender price inflation from the base date to the anticipated tender return date

Question 29

What is meant by the base date within a cost estimate?

Answer 29

• The base date is the starting point that helps measure time-related aspects of the project.
• It’s a reference date agreed upon by the parties involved.

Question 30

What does TPI stand for?

Answer 30

• Tender Price Indices

Question 31

What do TPIs show?

Answer 31

• They reflect the changes in the level of tender prices over a period of time, by taking into account the level of inflation

Question 32

Where can you obtain Tender Price Index information from?

Answer 32

• This information can be obtained from the BCIS

Question 33

What is the BCIS?

Answer 33

Building Cost Information Service
- The BCIS provides construction cost and price information through online services and pricing books

Question 34

What do you understand by the term VE?

Answer 34

• Value engineering is an organised approach to reduce cost on a project without detrimental affects to quality or performance

Question 35

What do you understand by the term VM?

Answer 35

• Value Management is the proactive process of defining what value means to a client
• And putting procedures in place to ensure that maximum value is delivered

Question 36

What are life cycle costs?

Answer 36

• Are costs that will be incurred over a defined period of operating and maintaining a building or an asset.

Question 37

What are the advantages of life cycle costing?

Answer 37

• enables informed decisions over material selection
• Can result in lower operational, maintenance and replacement costs

Question 38

What costs should be considered in life cycle costing?

Answer 38

• Capital costs
• Operational costs
• Maintenance costs
• Replacement costs
• Disposal costs

Question 39

How does the payback period method work?

Answer 39

• The length of time required for an investment to recover its initial outlay in terms of profits or savings
• The best option would be the one that has repaid the investment in the shortest time

Question 40

What sort of materials is the payback period method used for?

Answer 40

• Often used to evaluate the options for incorporating sustainable technologies

Question 41

What are the RIBA Stages?

Answer 41

Stage 0: Strategic Definition.
Stage 1: Preparation and Briefing.
Stage 2: Concept Design.
Stage 3: Spatial Coordination.
Stage 4: Technical Design.
Stage 5: Manufacturing and Construction.
Stage 6: Handover.
Stage 7: Use.

Question 42

What is the purpose of NRM 3?

Answer 42

NRM 3 links the cost analysis of the capital cost of a construction project with consideration of whole-life-cycle costing, and provides the tools to enable a seamless transfer of cost information from the construction team to the asset management team.

Question 43

What is SPONS?

Answer 43

Spon’s Architects’ and Builders’ Price Book.

Typical for projects that exceed £4m

Question 44

What risk allowances does NRM state need to be accounted for?

Answer 44

Design development risks
Construction risks
Employer change risks
Employer other risks

Total risk allowance = base cost estimate x % risk allowance for each of the above then added together.