Week 3: Cost Control and Planning Flashcards
Define inflation
A continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.
What is the difference between cost and price and what makes profit?
Price is the amount a customer pays for a product or service.
The difference between price and cost incurred is the profit the business makes when the item sells.
Are works undertaken in construction with no profit potential?
- Works are not usually undertaken with no profit potential
- However, in construction there are cases where they are (government projects)
What are the three different cost models?
- Single price model
- Superficial area method
- Elemental models
What relationship does a single price model analyse and when should it be used?
- Relationship between function (economic entity) and price (comparable example)
- Great for initial cost estimates (however don’t go low with cost as the client remembers the first value!)
What are some common single price model measures?
- Cost per room (hotel)
- Cost per seat (stadium)
- Cost per bed space (house)
- Cost per car (multistorey)
How would you calculate the construction rate for a single price model including assumptions that need to be made?
- Construction rate = Total Cost / Units
Example calc:
$1M / 10,000 seats (economic entity) - Adjust cost of comparable project for inflation and location
- Calculate final cost of new project
- Apply a 15% contingency (as uncertain, client remembers the first number!)
What is the Superficial Area Method based on?
- Based on calculation of functional areas (m^2) of a similar project.
- A cost will be generate per m^2.
How do you perform the Superficial Area Method simply and what improvements could be made?
- Calculate cost per area of similar project
- Adjust cost of project for inflation and location if required
- Multiply by area of your project
Tackle functional areas independently to improve method
What are the pros and cons with the Superficial Area Method?
Pros:
1. More accurate cost than single price
2. Scalability: Can adapt to projects of different sizes
3. Better resource allocation
Cons:
1. Still modelled off other projects relative characteristics. These may vary!
2. Difficult to update
3. Requires a good data base
4. Doesn’t adjust for location
5. Doesn’t consider changes in standards and price volatility
What is an elemental model and what do we need for it?
- Break down and costs components
- Need to know design details
What are the three key steps to completing an elemental model?
- Split the building into key component areas
- Apply unit rates or m^2 rate to components
- Allow for contingencies
What are the pros and cons of the elemental model?
Pros:
- Considers individual project characteristics
- More useful in design decision making
- Provides an accurate cost plan (lower contingency)
Cons:
- Requires detailed information
- Will lack accuracy if short on information
- Still doesn’t consider variation in location
What contingency should be implemented to allow for errors in estimating and changes in design? For additional high level thinking marks: When would we apply a 15% contingency over a 5%?
5 - 15% range
15% for single price as not accurate (client remembers the first price!)
10% for superficial area model
5% for elemental model (most accurate)
What is the key assumption for the single price and superficial area method that needs to be considered and are they modelled from scratch?
- Total cost is attained from past similar project and NOT modelled from scratch
- Although not exactly the same, characteristics are deemed to be comparable
