- Today, we're going to talk about
cost management documents, what's what,
and what you might need to financially plan
and control your construction project successfully.
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Before we do so, let's just recap from our previous video,
Cost Management 101, cost management,
also referred to in the construction industry
as cost consultancy and quality surveying
is the process of planning and controlling a project budget.
The documents used by quantity surveyors can be extensive,
and there's too much to cover in this video today.
So we'll be focusing on budget setting, cost planning,
and cost control up to the tender stage.
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One of the very first tasks of a quality surveyor
is to either help the client set a budget
or to verify that the budget allocated
is sufficient to meet the project brief.
The quantity surveyor will do this by producing an order
of cost estimate which just effectively
sets an authorized budget by providing
the client with a cost limit, this exercise is usually
undertaken during RIBA Stage 0 and 1,
and will be based on the project brief,
any existing information, and where an architect
has been engaged, feasibilities, or options appraisals.
Depending on the information available,
the quantity surveyor will determine the cost limit
by estimating the works cost estimate using one
of the following methods, floor area method,
which is the measure of the gross internal area
of the building and this is multiplied by a considered rate
per square meter, functional unit method,
which estimates the cost based on its function,
i.e, per bed space, per house, type, for example.
And then lastly, the elemental method,
which estimates the cost based
on the elements that comprise the building
which are broken down and assigned references,
and cost codes, once the quantity surveyor has worked
out the building works estimate by adopting one
of the three methods mentioned.
They will then make an assessment
on any facilitating works which are effectively
enabling works, for example, service diversions,
demolitions, removal of contamination, et cetera.
In addition to this, the QS will work out the extent
of the external works required,
any preliminaries needed, and the percentage estimate
for the main contractors overhead, and profit
to establish the works cost estimate.
To complete the order of cost estimate,
the quantity surveyor will also consider
the following matters, project and professional fees,
which at this stage will be determined
by a percentage on the works cost estimate.
Other development or project costs
such as over-sale and licenses,
planning fees, and planning contributions,
Section 106's, and the likes, and risk allowances allocated
to design, construction, and employer's risk.
Tender and construction inflation especially
where the project is large and expected
to run over a long period of time.
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Now that the proposed building project
has proved affordable, and a cost limit has been set,
the next stage is to cost control
during the design development stages up to the tender stage.
The quantity surveyor will do this
by developing the order of cost estimate into cost plans.
Elemental cost plans are produced as an intrinsic part
of the RIBA Work Stages 2 to 4.
It is good practice at the end of each work stage
to update the cost plan, to check that the project is still
on budget based on developed design and project information.
There are three stages to cost planning
during the pre-construction stages to tender.
You have Formal Cost Plan 1 which is produced
at RIBA Stage 2, Formal Cost Plan 2
which is typically produced at RIBA Stage 3,
and Formal Cost Plan 3, or a pre-tender estimate,
which is produced at the end of RIBA Stage 4.
The purpose of elemental cost planning
as described in NRM 1, produced by the RICS is to,
one, ensure the client is provided with value for money,
two, to make sure client and designers
are aware of cost consequences
of their desires and, or proposals.
Three, to provide advice to designers
that enable them to arrive at practical
and balanced designs within the budget.
Four, to keep expenditure within the cost limit approved
by the employer, and five, to provide robust
cost information upon which the client
can make informed decisions, elemental cost planning
is an iterative process which is performed in steps
of increasing detail as more design information
becomes available right up to the tender stage.
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When the project is ready for tendering,
typically at the end of Stage 4,
under Traditional Procurement,
the quantity surveyor will produce one of two documents
dependent on what is most suitable to the project's needs,
the procurement route, and the selected contract.
One, the Formal Cost Plan 3 which can be considered
the final version and two, a pre-tender estimate.
The Formal Cost Plan 3 is effectively the final cost plan
and provides the client with the estimated cost
to deliver the project in line with the project brief,
the final design, drawings, and specifications,
and any assessment of any remaining and outstanding risks.
The Final Cost Plan is especially useful
under construction management and management contracts
informs a procurement as it is a required contract document.
The pre-tender estimate is the final estimate
of the likely costs of the works
that describe in the complete tender documents
prepare to seek tenders from prospective contractors.
The pre-tender estimate is not included
in the tender documents, the PTE provides a final cost
comparison with the budget together with cashflow estimates
to enable the client to confirm
that sufficient funds are available
before committing to seek tenders.
It also gives a basis for assessing
and comparing tenders when they are returned.
The pre-tender estimate follows a standard approach
to estimating as set out by the RICS in the NRM 1.
It should be noted, however, that these documents
are not tender pricing documents,
which we'll cover in our next video.
So, I hope you found value in this video.
If you have any questions, feel free to contact us.
And we really look forward to hearing from you.
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