LECTURE 1:

COST
CONTROL

BTCM2043: CONSTRUCTION ECONOMICS

COST CONTROL
OVERVIEW OF THE TOPIC:
1.What is Cost Control?
2.Purpose of Cost Control?
3.What are the cost to be controlled?
4. Concept of Cost Control.
5. Cost Control process.
6. Effective Cost Control.
 WHAT IS COST CONTROL?
 Cost control can be defined as the process of
comparing actual expenditures to the baseline
cost plans to determine variances, evaluate
possible alternatives and take appropriate
actions.

 Itis also a process of controlling the expenses

in a particular project, from the starting of the
client’s briefs, to the project completion and
ultimately the final account of the aforesaid
project.
WHAT IS COST CONTROL?
WHY COST CONTROL IS NEEDED?
Clients demand…

Price certainty Project completed within

budget & time

Best quality possible based

on reasonable price
PURPOSE OF COST CONTROL
Cost Control is to ensure that:
 The cost of the building is kept within the agreed
cost limits.
 Resources are used at the best advantage.
 Give the building client good value for money.
 To achieve a balanced and logical distribution
of the available funds between the various part
of the building.
 To keep total expenditure within the amount
agreed by the client.
CONCEPT OF COST CONTROL
The main elements of “Control Process”.
1. The preparation of a plan that will achieve
the objectives of the work
2. The recording of the plan in terms of the
inputs to or the outputs from the system
(The definition of the quantities and
organization of the resources will be
necessary for the conversion of inputs to
outputs.)
CONCEPT OF COST CONTROL
4. The use of feedback in order to compare
what is happening in practice with that
which was planned
5. The evaluation of variances arising from the
comparison, leading to decisions as to
whether corrective action is required and
whether a change in resources allocation is
necessary
COST CONTROL : HOW & WHEN?
FINANCIAL MANAGEMENT:
HOW & WHEN?
 COST CONTROL PROCESS
Stage of Description
work
Strategic • A process to ratify that a construction project, or
Definition otherwise, is the best means of achieving the Client
Requirements.
• It focuses on making the right strategic decisions and
capturing them in a Business Case.
• Initial considerations for assembling the Client’s team -
appointment of administratives organisation and advisors.
• Review feedbacks from previous project.
• Prepare a rough cost estimate, which captures a very
high-level calculation of the Project Budget to meet the
Client Requirements.
 COST CONTROL PROCESS
Stage of Description
work

Preparation • The Client Requirements for the project are considered in more
& Briefing detail, in connection with a specific site or sites, and the
outcomes recorded in the Project Brief.
• Appointment of Design Team – architect, engineers, Qs.
• Two key activities involved:
1) Feasibility study – a proposal to determine whether a
project is viable or feasible from business, technical and
social points of view
2) Preparation of project brief - a statement of needs of the
client, how the propose facility will be used, define the
client’s requirements in terms of concept, time, cost and
functionality.
• Cost control systems needs to be established in order to
produce a realistic first estimate, known as the cost limit. The
cost limit is to test the feasibility of achieving the emerging
Project Brief.
Cost Limit

Example using ‘Floor Area Method’:

Total Cost of
Proposed = Cost /m2 GFA x Gross Floor Area
Building (analysed) (proposed)
 COST CONTROL PROCESS
Stage of Description
work

Concept • It sets the Architectural Concept incorporating strategic

Design Engineering requirements. Proposals that align with the Site
Information and the Project Brief, including the Spatial
Requirements, are prepared.
• Externally, the building must meet the vision of the client, as
well as the demands of the local context and environment.
• Architect & Engineer begin to consider the various alternative
ways in which the building can be designed and constructed,
having regard to soil conditions, type of foundation,
constructional form and costs.
• Quantity Surveyor gives general guidance on costs, evaluates
the financial effect of different solutions to any specific design
problem and prepares an Initial Cost Plan which includes an
elemental analysis of the various significant elements of cost
and initial bulk quantities of key items set out in the Outline
Specification.
 Initial Cost Plan
Group Element Percentage (%) Cost/m2 GFA (RM) Total cost of Building A
(RM)
Substructure 20 20% x RM1,500 = RM300 x 500m2 =
RM300.00 RM150,000.00
Superstructure 40 RM600.00 RM300,000.00
Finishes 15 RM225.00 RM112,500.00
Furniture and Fittings 13 RM195.00 RM97,500.00
Services 12 RM180.00 RM90,000
TOTAL BUILDING COST RM1500.00 RM750,000.00
External works / 15% of building 15% x RM750,000 =
Infrastructure cost RM112,500.00
TOTAL BUILDING & RM862,500.00
INFRASTRUCTURE COST
Preliminaries 3% of building & RM25,875.00
infrastructure cost
SUB-TOTAL RM 888,375
Contingencies 5% of sub-total RM 44,418.75
TOTAL PROJECT COST RM 932,793.75
 COST CONTROL PROCESS
Stage of work Description

Spatial • Testing and validating the Architectural Concept, to

Coordination make sure that the architectural and engineering
information prepared at Stage 2 is Spatially
Coordinated before the detailed information required
to manufacture and construct the building is
produced.
• Detailed Design Studies and Engineering Analysis are
undertaken to ratify the assumptions made during
Stage 2 and to layer more detail onto the design.
• Prepare and submit Planning Permission to Local
Authority
• Quantity Surveyor will also need to establish Detail
Cost Plan and breakdown cost into elements and
confirm on final budget.
No. Group Element Total element cost (RM) Cost/m2 Brief specification
GFA (RM)
1.0 Substructure RM150,000.00 RM300.00
1.1 Piling RM52,500.00 RM105.00 Concrete piles 12m deep
1.2 Work below lowest floor finish RM97,500.00 RM195.00 Concrete G25 to foundation, column stump and ground beam

2.0 Superstructure RM300,000.00 RM600.00

2.1 Frame RM105,0000.00 RM210.00 Concrete G25 to column and beam
2.2 Upper floors RM60,000.00 RM120.00 125mm Concrete G25 floor slab
2.3 Roof RM27,000.00 RM54.00 Timber roof trusses and concrete tiles
2.4 Stairs RM15,000.00 RM30.00 Concrete stairs and timber finishes
2.5 External walls RM15,000.00 RM30.00 115mm Brickwall
2.6 Windows & External doors RM36,000.00 RM72.00 Generally aluminium frame for windows and ‘nyatoh’ doors
complete with ironmongeries

2.7 Internal walls & Partitions RM18,000.00 RM36.00 115mm Brickwall

2.8 Internal doors RM24,000.00 RM48.00 ‘Nyatoh’ doors and ironmongeries
3.0 Finishes RM112,500.00 RM225.00
3.1 Internal wall finishes RM17,000.00 RM34.00 Generally plaster and paint and full tiled wall to wet areas

3.2 Internal floor finishes RM45,000.00 RM90.00 Homogenous tiles to main areas, timber floor strip to bedrooms
and granite tiles to living areas.

3.3 Internal ceiling finishes RM22,500.00 RM45,00 Plastered ceiling

3.4 External finishes RM28,000.00 RM56.00 Plaster and paint to wall, granite tiles to floor and wood paneling
to ceiling
4.0 Furniture and Fittings RM97,500.00 RM195.00 Built-in furniture and others
5.0 Services RM90,000 RM180.00 Inclusive sanitary system, electrical installation, air condition and
security systems

TOTAL BUILDING COST RM750,000.00 RM1500.00

6.0 External works / 15% x RM750,000 = RM112,500.00 RM225.00 Installation of fence, landscape, drainage and road
Infrastructure
TOTAL BUILDING & RM862,500.00
INFRASTRUCTURE COST
7.0 Preliminaries 3% x RM862,500 =RM25,875.00 RM51.75

SUB-TOTAL RM 888,375
8.0 Contingencies 5% x RM888,375=RM 44,418.75 RM88.84
TOTAL PROJECT COST RM 932,793.75 RM1865.60
 COST CONTROL PROCESS
Stage of Description
work
Technical • Stage 4 involves the preparation of all information
Design required to manufacture and construct a building.
• It is to include all architectural, structural and building
services information, specialist subcontractor’s design
and final specification.
• The presence of detailed drawings and specification
permits the QS to prepare accurate estimate and
detailed quantities.
• BQ & tender document is prepared and tenderers are
invited.
• Submit Building Plan Application to local authority.
• Appointment of Contractors (traditional procurement)
 COST CONTROL PROCESS
Stage of work Description

Manufacturing • Building contract let and contractor appointed.

and • Stage 5 comprises the manufacturing and construction of
Construction the Building Systems in accordance with the Construction
Programme agreed in the Building Contract.
• Contract Documents is issued to the contractor (drawings,
BQ, etc)
• The client or their representative administers the building
contract up to and including practical completion.
• Further information supplied to the contractor as and when
reasonably required.
• Issue the Certificate of Practical Completion which allows a
building to be handed over to the Client.
• Monitor and report the cost of any variations to the Building
Contract, against Cost Plan and contractor’s pricing
document
• Prepare and issue interim valuations for payment.
 COST CONTROL PROCESS
Stage of Description
work
Handover • Stage 6 starts with the building being handed over to
the client, with aftercare initiated and the Building
Contract concluded.
• The construction team rectify any residual defects as
promptly as possible and the contractor is responsible
for any repair works throughout the defect period of
the project.
• Usually twelve months after Practical Completion, the
Certificates of Making Good Defects will be issued,
which concludes the contractual involvement of the
design and construction teams.
• The quantity surveyor will carry out final duty that is the
preparation of the statement of account and final
account of the project.
 COST CONTROL PROCESS
Stage of Description
work
Use • On the majority of projects, the design team and
construction team will have no Stage 7 duties to
undertake. However, both teams will be interested in
receiving ongoing Feedback, to help them
understand how they might improve the performance
of future buildings.
• Post Occupancy Evaluation services are
commissioned to determine how the building is
performing in use to help fine tune the building and
inform future projects
• Embed final cost data from the completion of the
construction phase into a Facilities Management
operating model, for use in building maintenance,
repair or renewal, as required.
 WHAT ARE THE COST TO BE
CONTROLLED?
COST

MATERIALS LABOURS PLANTS OTHER

EXPENSES
• Direct Cost

• Indirect Cost
 QUANTITY SURVEYOR’S
COST CONTROL FUNCTION
 Scrutinized the priced bills of quantities
and schedule of rates.
 Agree with the contractor on ground
levels, suitable arrangements for dealing
with day works.
 Claims for materials price fluctuation.
 Costing for variation orders.
 Measurements and interim valuation.
 QUANTITY SURVEYOR’S COST
CONTROL FUNCTION (cont’d)
 Comparison of the estimate with the total
allocated financial resources.
 Assessment of profitability of the contract
secured.
 Preparation of cash flow projection. Many
construction companies become
insolvent through bad estimating and
planning, ineffective cost control or
inadequate site control.
EFFECTIVE COST CONTROL
 Effective cost control can be achieved by:
 Establishing that all decisions taken during
design and construction are based on a
forecast of the cost implications of the
alternatives being considered.
 Encouraging the project team to design within
the cost plan at all stages and follow the
variation/change and design development
control procedures for the project.
 Regularly updating and reissuing the cost plan
and variation orders causing any alterations to
the brief.
EFFECTIVE COST CONTROL (cont’d)
 Effectivecost control can be achieved by:
 Checking that the agreed change
management process is strictly followed at all
stages of the project.
 Arranging for the contractor to be given the
correct information at the correct time in order
to minimise claims.
 Contingency provisions are based on a
thorough evaluation of the risks and are
available to pay for events which are
unforeseen and unforeseeable.
EFFECTIVE COST CONTROL (cont’d)
 Effective cost control can be achieved by:
 Submitting regular, up-to-date and accurate
cost reports.
 Ensuring that all parties are clear about the
meaning of each entry in the cost report.
 Ensuring that the project costs are always
reported back against the original approved
budget.
 Plotting actual expenditure against predicted
to give an indication of the project’s progress.
 QUICK REVIEW ON TERMINOLOGIES
 Cost Studies – A process whereby cost information of similar
buildings is gathered and compared to provide a financial
dimension of new development and to review possible options.
 Cost Limit – It simply means ‘maximum expenditure’. It also
mentioned as a statement of the limit of cost for clearly defined
client requirement beyond which a client is not prepared to enter
into a building contract.
 Cost Plan - Cost plan is a cost statement in terms of how a
designer intends to design each element or part of a building.
 Cost Check – It is a cost-monitoring activity to secure a genuine
design for elements that can be built based on the cost plan,
which have been prepared within the cost limit.

THE END…