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Dear process assesses how aligned the client’s budget

Dear Madam,

This report will outline the
specific services we are able to offer, the methodology of how they will be
executed and what that means to you, the client. It will focus on Pre-contract
cost management, budgeting, Pre-tender estimate and other Quantity Surveyor services.

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Pre-contract cost management
includes a range of varying services that are used to manage and allocate
prospective costs at the earliest stage available; as well as outlining how
these costs can affect correct decision making at the earliest opportunity.
This can be vital for aspects of the design phase as some decisions relating to
the construction process are harder to alter than others. The basis of cost
control helps the design team achieve the best and most efficient design that
is available for the approved budget. The stages of pre-contract cost managements
can be broken down into:

·        
Initial cost estimate – Prepared during feasibility

·        
Elemental cost Plan – Prepared during project brief
stage to detailed design

·        
Pre-tender estimate – The final and most accurate
estimate

The pre-contract cost planning/ cost
management links directly to the RIBA plan of work stages; preparation and
brief, concept design, developed design and technical design. (Ribaplanofwork.com,2018).
During the preparation and brief stage, we, in collaboration with the design
team and the client, establish whether the client’s requirements can be
delivered within their available finance.

The first stage of any project is
for us to establish a clear view of priorities, expectations and wants from the
client (Buildrite
Construction, n.d.). Considering the procurement route chosen is traditional,
there should already be an understanding of building use, the
development programme, the building design and an idea of the client’s budget
that they have set (Buildrite Construction, n.d.).  When this information is gathered, we will
then assess the initial design obtained from the architect and undergo a
feasibility study to produce an initial cost estimate. This process assesses
how aligned the client’s budget is with the estimated cost as we are able to calculate
a cost per square metre rate via benchmarking. Benchmarking is “a comparison in
cost of similar projects, in order to review levels of pricing”. We are able to
use this exercise in order to analyse the efficiency and focus of the project.
This is done via accurate measurement of the GIFA (Gross Internal Floor Area)
of the project in accordance with Code of Measuring practice to identify the
cost /m2 or cost per functional unit in conjunction with SRM (Standard rules of
measurement) such as NRM2. This also depends on detailed market analysis to
establish:

·        
Specification

·        
Location

·        
Abnormality

·        
Sustainability

·        
Programme

·        
Building efficiency

·        
Date of the project

(Rossiter
J., 1996)

Even if the data between the two
comparable projects are different, there are a number of adjustments we are
able to make to update the cost data to align them with the time/location. Therefore,
giving us a more accurate comparison between 2 projects. This information is
gathered either in-house via tender returns, market data or final Accounts or
through BCIS (Building Cost Information Service). The benefit of this practice
is that we have the capability to collate elemental values and extrapolate
those values to determine an approximate overall cost. This gives a clear
financial view for the client to make potential changes to the design. For
example, if one element has a much higher cost than expected due to an
unconsidered variable, we can discuss options with the client on how we can
drive the cost down, and what that means for other elements of the build.

The benchmarking process involves:

·        
Defining the process

·        
Data collection

·        
Data comparison

·        
Analysis

·        
Action

·        
Repeat

(Constructing Excellence, 2004)

Benchmarking adds the benefit of
establishing a representative and accurate allocation of the cost throughout
the different elements, which can be used as a part of the value engineering
process which involves sustaining the function while reducing the cost. This
deep analysis allows us to also recognise common relationships between
variables that may have been over overlooked previously – another tool we can
collectively use to optimise efficiency.

It also allows us to establish a realistic programme of
works by comparing the project to those similar and making a calculated
assumption of what time frame the project should be completed in.

There must be considerations for
inflation within the budget. We are able to calculate inflation by using the trade
price index (TPI) and adjusting predicting future inflation levels. There are a
number of resources that we use which provides current and predicted future
inflation rates such as Tradingeconomics.com.

An elemental cost plan is a
technique that is used to break down the design assesses how the budget is
distributed among the elements that are divided in accordance with NRM1. This will
produce an approximate total construction cost by acquiring prices from contractors/suppliers.
As the design stages progress and become more detailed (as per the RIBA plan of
work), more developed cost plans will be issued, obtaining more accuracy through
higher levels of detail. Cost plans should be presented in accordance with the
new rules of measurement (NRM1). Cost checking will also be required as the
design stages progress, to ensure that the design is within cost targets. If
the design is undertaken according to the individual elements of the building,
this makes the cost checking exercise much more straightforward for the QS. It
may be the case that an element of the building is over budget. If this is the
case, the element may need to be redesigned or another element changed so that
the overall budget is not exceeded.

As per the diagram below, the
earlier the change is made in the project, the higher the impact of the change
and lower the cost. However, as the project progresses, the impact of the
change decreases and the higher the cost associated with it. Detailed cost
planning ensures that the design team are designing to a budget rather than the
cost manager costing to a design. The outcome of this can produce value
engineering exercises, a potential cash flow projection as well as a whole life
cycle cost.

At the pre-tender stage, all cost
management increases confidence of a tender cost. A pre-tender estimate is the
stage between cost planning and post contract. Our role is to then produce the
final estimate of the costs of the works that are described in tender documents
before tender offers are received. (Designing Buildings Ltd, 2018) We will once
again use benchmarking techniques, although our choices of comparable projects
may differ due to a final design being to the highest detail and being able to
price all elements realistically and accurately.

The pre-tender estimate combines
the cost plan with the tender information to identify any mistakes and ensure
consistency. It also allows the client to have a final view in to ensure
nothing has changed without their consent or make any changes. (RICS, 2018)

The final comparison can be made
with the budget, however if the pre-tender estimate exceeds the budget then the
QS must provide explanation or solution for the client to analyse and consider.
The pre-tender estimate must be broken into packages which allows easy
comparison between tenders. The pre-tender estimate must also follow a standardised
approach outlined NRM1.

According to the RICS, value can
be described in the following way: “value can be thought of as a very simple
idea – the ratio between the benefit derived from a course of action and the
cost or effort required to achieve it” (RICS, 2017). Our additional services of
value management and value engineering allows us to provide value to your
company. Both terms refer to searching for improvements within a project although
they both achieve this in different ways.

VE (value engineering) will
include the project team to focus on retaining functionality and performance of
an element while reducing the cost. This can be done by suggesting alternative
materials, components and systems, comparing the different cost impacts and
performances and selecting the most efficient route that would be best value
for money for the client.

VM (Value management) is a
broader process which studies what ways value can be added to a project
strategically while still attending to the project brief. Value management
output focuses on aligning business needs with project objectives by
identifying what is most valuable to the client. This As the value management
is at a more strategic stage of the project, there could usually be more input
from various stakeholders. For example, if we were to undertake value
management for your prospective building, we may potentially engage with local
planning authorities, local residents and businesses as well as the client and
design team through various workshops.

The earlier value management and
value engineering are carried out on a project, the higher the chance of
significant cost savings to the project. It is important to consider that there
may be additional costs to the project due to value management and value
engineering. However, the expectation is that the overall value will far
outweigh the initial costs.

Cost of change to a project
over time

Fig. 1 (RICS, 2017)

 

Life cycle costing must also be
considered in order to identify the cost of the full life of a product or
service. Since life cycle costing considers the life time value of a building,
it could be part of the decisions during the design phase. If this is
considered early in the design phase of the building, it can be implemented
without additional cost or minimal additional cost. We are able to assist in
advising and recommending particular methods used within the industry in order
for those options to be assessed.

A risk can be described as an
event that if it occurs, could cause potential cost and programme implications
to the project. The RICS describe risk management, as “the process through
which the project team, including the client, identifies and assesses the risks
that the project poses. This enables them to be acknowledged, prioritised and
then managed in a structured way to reduce their effect on the project as a
whole” (RICS Guidance Notes, 2017). The RICS NRM states that risks take the
form of: Risk avoidance, risk reduction, risk to the contractor, risk shared by
the client and contractor and risk retention by the employer.

Another role within our scope of services
includes risk management. We are able to manage risk by establishing a risk management
plan containing a risk strategy. This identifies risk ownership, evaluates the
different risks and outlines actions to be taken to control risk.

Contained within the budget we
are able to outline an amount necessary for contingency – usually 5% – for any
unforeseen changes to the design. These changes could include price changes in
the market, or insufficient level of detail in the original project scope when
the budget is being established as well other This contingency will decrease as
the design phase’s progress. The level of contingency should reflect the level
of risk associated with the project. As Faithful and Gould explain, “The design
contingency is usually up to 10% of the overall construction cost. Whilst
calculated and identified separately, the contingency amount should be an
additional sum held by the owner in the project budget. The owner holds the
budget and retains it for use by the architect and designers to ensure that all
desired scope is covered” (Hawkes, 2017). The contingency will also need to be
considered for the main construction phase of the project. This will be
established based upon identified risks, how likely they are to occur and their
possible impact on the project. Some of the techniques that are used for
calculating the contingency of a project are: percentage addition,
Probabilistic method and a sensitivity analysis.

x

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