Preliminary budget

Budgets are used for planning and controlling income and expenditure, it is through the budget that a company’s plans and objectives can be converted into quantities and monetary terms. Budgeting decides whether the project should proceed as envisaged or not as the case may be.

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Throughout a project’s planning, design and construction phases, cost estimating is employed as a means of validating decisions affecting the scope and quality of work. Once an initial budget has been established, it is important to test its assumptions by employing a series of increasingly precise cost estimating techniques that coincide with further development of design and construction details. A sound understanding of the most common types of estimates, tools for estimating, historical database sources, and methods of estimating forms the basis of the more sophisticated methods of estimating, such as cost models.

Early in the planning stages, both building clients and designers must agree on an anticipated cost of the project at completion. Preliminary estimates are employed in the early planning phases of a proposed project to match an owners needs, expressed as written programmatic requirements, with budget constraints in order to establish its overall scope and quality expectations. Estimate comparisons at this stage are especially valuable in evaluating the feasibility of strategic alternatives being considered to satisfy current and projected space requirements (often known as Conference estimating). Financial methods fix a cost limit to the building design, where elemental cost planning is used; this will be the target cost that should be decided during the brief stage. Where comparative cost planning is used, some idea of the figure may be suggested in the earliest stage but the actual decision is not made until the design stage when the cost plan has been drawn up.

Methods of estimating, used in the early stages of cost planning, depend on reliable historical cost data whereas an analytical approach to estimating is based on applying current prices for resources to a well developed design. A contractor may use a combination of estimating method in developing a cost for a design and build project. For example, a client could be given a cost range from construction using the unit method and an elemental cost plan would be produced when the client’s outline brief is received.

Early price estimating during the design stage use a variety of techniques, shown in the table below. These techniques have become known as single price methods.

Each method of estimating offers a level of accuracy that is directly related to the amount of time required to prepare the estimate, therefore it is important to select the correct method of estimating for the projected budget. The unit method is often used in early planning stages when little information is know about the program other than overall project parameters. This method is also known as the ‘preliminary estimate’, which, however, has no better than 15% to 25% accuracy. In the unit method, the work is divided into the smallest possible work increments, and a “unit price” is established for each piece.

That unit price is then multiplied by the required quantity to find the cost for the increment of work. This calculation is often called “extending”. Finally, all costs are totalled to obtain the estimated cost. The unit method is the simplest to implement however considerable experience is necessary in order to select an appropriate rate taking into account varying site conditions, specification changes, market conditions, regional changes and inflation. Also it suffers from a lack of precision, and at best can only be a rather blunt tool for establishing general guidelines.

Superficial comparison estimating uses historical information on total costs from past projects of similar building type. For example, the number of beds in a hospital, or number of spaces in a parking garage, or number of courtrooms in a courthouse can form the basis of a project comparison estimate by comparing them to similar scope projects recently done in the same geographic region. Superficial estimating requires the assumption of an approximate gross area for the proposed work and a sufficient historical record of similar building types.

The greater the number of prior project combinations for which scope and prices are known, the easier it is to perform project comparisons. The huge range in superficial area rates presents the estimator with some problems. At best, therefore, they can only represent a guide price and must be adjusted to suit local conditions on the basis of the estimator’s personal experience and skill. Cubic Foot Estimates are another method of developing both preliminary and intermediate budgets based on historical data.

This method is effective in preparing fairly accurate estimates if the design is well developed enough to allow measurement and calculation of floor areas and volumes of the proposed spaces. There are several historical databases available to support this method of estimating providing unit costs that are adjusted annually. More accurate estimates made with this method make adjustments and additions for regional cost indices, local labour market rates and interruption between available cost tables.

Further adjustments may be made to account for other unique aspects of the design such as special site conditions or design features being planned. Estimates made with this method can be expected to be within 5% to 15% of accurate. However, with building designs becoming more complex there are a larger number of variables to consider in order to arrive at anything approaching a correct price. Elemental cost planning method. The elemental analysis provides a breakdown of cost by construction elements.

Initially, elemental costs should be based on assumption, historical data and calculation. Subsequent submissions must be based on quantity take-off as information becomes available during the development of design. Elemental cost analysis tends to relate the cost back to various building components – the elements that always perform the same function, for example, roof, external walls and external windows, etc. The forecast cost of each element can be calculated in two ways. * By measuring the approximate quantity of each element and applying a unit rate By calculating the proportion of total cost for each element on a similar building and using this ratio to divide the budget for the proposed building into its elemental breakdown Elemental cost planning should provide a means of controlling costs so that they are kept within the estimated figure. The process may show that the preliminary estimate or budget figure is seriously wrong, in which case it will be necessary to refer to the client for his decision. (1) Approximate quantities method, it is the most reliable of all forms of preliminary estimate.

A contractor needs to produce bills of approximate quantities when tendering for work based on drawings and specifications. The accuracy of this method is related to how far the design has developed. At least the quantities are based on the planned construction and not a previous job and realistic allowances are made for plan shape, height of building, type of ground, quality of finishes etc. There would be little point in attempting to prepare approximate quantities for a project which is yet to have its basic design concepts developed.

The only merit of this is where some close correlation may exist with previous projects. It may be desirable under some circumstances to be able to offer some element target costs to which the designer can work and evolve a design page (2) Many quantity surveying practices use computer software packages or spreadsheets for preparing cost plans. The advantage of using a computer is that an estimate to any level of detail can be updated quickly and efficiently for changes which may be necessary in a revised design.

Various sources of historical data are available, such as published price books (Griffiths Building Price Book or Spon’s Architects’ and Builders’ Price Book), cost information publication services, trade journals, and, most important, cost feedback from actual projects The feedback cycle is of critical importance. In order for estimating to be effective, feedback from the job site must occur. Actual costs should be compared with estimated costs to inform the estimator of his or her performance during the estimating phase.

Unfortunately, the feedback process is not carried out effectively within the industry. To quote the Business Round Table Report on modern management systems: “Even within companies, a feedback of actual costs is not consistently used to review and adjust the basis for estimating future projects. “(3) When using historical data to compare bills of quantity great care must be taken as considerable variation in price will be found, this is due to a number of factors.

Location of the site, whether it is a rural or an urban build will cause a variation between the bills. The estimator may have deliberately distorted the rate in anticipation of variations or to gain extra financing. Human error, it is more than likely that this can occur. The lack of accurate data, time constraints may mean that the estimator is unable to price all items; companies may have their own work force while others will use sub-contractors. All these variations will have to be considered when using historical data to compare rates.

It is becoming increasingly apparent that to predict cost accurately is a problem which is common to all industries. Throughout the construction industry there are extra difficulties due to the complexity and uncertainty of the type of work involved. The difficulty with all the methods used is in the selection of the appropriate rate to be applied. Considerable expertise on the project concerned is therefore desirable to obtain consistently reliable results and meet the requirements of the client’s budget

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