SBQ 2423

Introduction to Cost Studies

Introduction to Cost Studies

FARA DIVA MUSTAPA
DEPARTMENT OF QUANTITY
DEPARTMENT OF QUANTITY 
SURVEYING, FACULTY OF BUILT 
O
ENVIRONMENT
 Definition of Cost Estimation
Definition of Cost Estimation
• Estimation requires knowledge of construction, common sense and 
judgment. Therefore it is not an exact science (Peurifoy,R.L and 
Oberlander, G.D, 2002).
• Cost estimating is a technical process in order to predict construction cost 
for a proposed building. It can be done for either the whole building, 
building components or construction item for each measured work 
(Abdullah, 2006).
 Definition of Cost Estimation (cont’d)
Definition of Cost Estimation (cont d)
• A
A technical process to predcit the consturction costs 
technical process to predcit the consturction costs
(Enterkin & Reynolds 1978) 
• A technical process to calculate the costs for 
p
construction through the preparation of build‐up 
rate of each construction item in a tender (Ashworth 
1996) 
Introduction to Standard Method 
of Measurement 2 (SMM2)
 Introduction to SMM2 (Cont’d)
Introduction to SMM2 (Cont d)
• The
The usage of standard method of 
usage of standard method of
measurement in lieu with the preparation of 
construction cost is to ensure that similar
construction cost is to ensure that similar 
platform is used utilising the same standard 
construction measuring approved by
construction measuring approved by 
professional bodies.  
• In Malaysia, the Royal Institution of Chartered 
In Malaysia the Royal Institution of Chartered
Surveyors is responsible in preparing the 
standard method for both building and civil
standard method for both building and civil 
engineering work measurement.
 Introduction to SMM2 (Cont’d)
Introduction to SMM2 (Cont d)
• The Malaysian Standard Method of
Measurement of Building Works (Second
Edition) is an important document for
Quantity Surveyors in Malaysia.

• It is a document prepared and published

b the
by th Institution
I tit ti off Surveyors
S M l
Malaysia
i in
i
May 2000.
 Introduction to SMM2 (Cont’d)
Introduction to SMM2 (Cont d)
• It is a document that contain definition of
principles that is aimed at providing uniform
method of measurement, quantification and
billing of building works for use by quantity
surveyors.

• It is not an inflexible document as such

quantity surveyors are expected to use their
discretion and provide more information where
y
necessary.
 What does SMM do?
What does SMM do?
1. How to itemise the various building
g work items

2. How to describe the various building items

3. How to measure the various work items

4 What is the unit of measurement or billing for the

4.
various work items

5 and
5. d tto a certain
t i extent,
t t define
d fi how
h a bills
bill off
quantities should be prepared and formatted
 Content of SMM2
Content of SMM2
• Section A General Rules
• Section B Preliminaries
• Section C Demolition
• Section D Excavation and Earthwork
• Section E Piling and Diaphragm Walling
• Section F Concrete work
• Section G Brickwork and Block work
• Section H Underpinning
• Section J Masonry
y
• Section K Waterproofing and Asphalt Work
• Section L Roofing
 Content of SMM2 (cont’d)
Content of SMM2 (cont d)
• Section M Woodwork
• Section N Structural steelwork
• Section P Metalwork
• S ti
Section Q Pl bi
Plumbing andd Mechanical
M h i l Engineering
E i i Work
W k
• Section R Electrical Installation
• Section S Floor, Wall and Ceiling Finishes
• Section T Glazing
• Section U Painting and Decorating
• Section V Drainage
• Section W Fencing, Turfing and Planting
 The Importance of Cost Study
The Importance of Cost Study
• There
There are several types of estimates 
are several types of estimates – eg. 
eg
Consultant’s estimates, developer’s estimates, 
contractor'ss, sub
contractor sub‐contractors
contractors etc.
etc
• These estimation are different in terms of 
name function and usage
name, function and usage
• For example, an estimation between a client 
and a contractor are different in terms of;
d diff i f
The Importance of Cost Study (cont’d)
The Importance of Cost Study (cont d)
Client Contractor

To control the  To propose the most 
feasibility and viability  competitive cost for 
of construction  tender bidding 
development purposes

To know the future 
financial commitment  To control company’s 
and company’s cash  cash flow
flow

To control the  To control the 
construction cost construction cost

To plan for materials 
To know the most 
purchase, plant & 
optimum tender 
machineries hire & 
bidding cost
labour

To manage and 
monitor development 
cost
The importance of cost studies
The importance of cost studies
Preparing a detail and 
Preparing a detail and
accurate construction 
cost will help to execute 
and complete the 
construction project 
successfully.
f ll
 Use of Cost Estimating in Construction Development Process
g p
TECHNIQUES
PRE Bill of Quantities
60s Approximate Estimate
Estimating Accuracy on a Construction Project
Estimating Accuracy on a Construction Project
60s Cost Planning
Cost Analysis
+/‐ Elemental Bills
50%
70s Cost Modelling
Cost‐In‐Use
Formulae (Price
Adjustments)
80s Life‐Cycle Costing
Cost Data
Inception Value Engineering
Value Engineering
DESIGN CONSTRUCTION Final 
Tender Cost Engineering
Account
Accuracy in Forecasting
90s Expert Systems
Quality Systems
 CONSTRUCTION PROJECT MANAGEMENT

DESIGN MANAGEMENT CONSTRUCTION FACILITY

MANAGEMENT MANAGEMENT

ASSEMBLY
PLANNING AND
HANDOVER and d
INCEPTION FEASIBILITY DESIGN
OPERATION
• Project brief • Project • Base design
• Final Testing
• Appoint formulation • Cost and schedule
• Maintenance
consultants • Feasibility study • Contract terms
• Market study • Strategy design • Detailed planning

DESIGN PRODUCTION OCCUPANCY

CONSTRUCTION PROCESS
 INCEPTION & FEASIBILITY SCHEMATIC
PRODUCTION OF STUDY CONCEPT DESIGN DETAILED
PROJECT BRIEF DESIGN DESIGN

PREPARE SELECT
PREPARE BILL TENDER TENDER AND CONTRACTOR
OF QUANTITIES DOCUMENT EVALUATION & AWARD OF CONSTRUCTION
OF TENDER CONTRACT
 Design
Design and Build Approach
and Build Approach

INCEPTION & INVITATION TO

FEASIBILITY PREPARE
DEVELOP TENDER/ EVALUATE
STUDY PROJECT BRIEF
PROJECT BIDDING BIDDING
& CLIENT’S
OBJECTIVES
REQUIREMENTS

CLIENT’S RESPONSIBILITY

SCHEMATIC PROJECT COST & BIDDING

TECHNICAL AND
DRAWINGS & PRICE SCHEDULE DOCUMENTATION
FINANCIAL
SPECIFICATION
PROPOSAL

CONTRACTOR’S
CONTRACTOR S RESPONSIBILITY
Factors that might influence cost accuracy
Factors that might influence cost accuracy

• Economy
Economy – changes in construction materials
changes in construction materials’  
& labour costs, changes in supply and demand 
of construction output; changes in
of construction output; changes in 
government policies/banking institutions
Factors that might influence cost accuracy 
(
(cont’d)
’d)
• Project‐
Project Project type (government, private), 
Project type (government private)
size, project duration, contract size, site 
physical etc
physical, etc.
Factors that might influence cost accuracy 
(
(cont’d)
’d)
• Project
Project design 
design – size, heights, structure, 
size heights structure
specification, build ability (complexity of 
constr)
Factors that might influence cost accuracy 
(
(cont’d)
’d)
• Management
Management – procurement/contractual 
procurement/contractual
arrangement; site management; human 
resource management
resource management
Factors that might influence cost accuracy 
(
(cont’d)
’d)
• Management
Management – procurement/contractual 
procurement/contractual
arrangement; site management; human 
resource management
resource management
 Activity 1 – Break it down
Activity 1  Break it down
• What constitutes a construction cost?
What constitutes a construction cost?
• Elaborate and gives actual example

• Duration: 5 minutes
 Components of Unit Rate
Components of Unit Rate

LABOUR MATERIAL PLANT OVERHEADS PROFIT

Supervisor Transportation Mechanised

Craftmen Handling Head
Hire P
Hi Purchase
h
General Labour Storage Fuel
Office
Waste Attendance
Sub-Contract Maintenance/
Labour Repair
p Site
Depreciation

Non
Mechanical
 Components of Unit Rate (cont’d)
Components of Unit Rate (cont d)
• The
The costs of overhead and profits varies from 
costs of overhead and profits varies from
each of construction firms. This is due to 
different strategy adopted by them
different strategy adopted by them.  
 Relationship of Construction Cost 
Estimation with Tender Price
h d
• The
The next figure will explain the relationship 
next figure will explain the relationship
between the construction cost estimation and 
Tender Price
Tender Price. 
• Tender price is the cost accumulation from 
each of the construction work items listed in
each of the construction work items listed in 
the Bills of Quantities (BQ).
 COST : HIERARCHICAL STRUCTURE
TENDER SUM TOTAL COST

SUBSTRUCTURE SUPERSTRUCTURE FINISHING SIMPLIFIED ANALYSIS

UPPER
FLOORS FRAME ROOF AMPLIFIED ANALYSIS

Columns Beams QUANTITY FACTORS

Reinforcement Concrete Formwork MEASURED WORKS

Plant Labour Material ITEM ANALYSIS

Supervisor Craftmen Labourer LABOUR ALL-IN RATES

Basic Rate LABOUR BASIC RATE

 HOW DO WE MEASURE COST?

COST METRICS Description Unit Rate Amoun

t
UNIT OF UNIT OF
FINANCE MEASUREMENT 1 1264 Gallons Pressed No.1 750
Steel Tank Hot Dipped
AREA G l
Galvanised
i d c/w/ W
Water
t
COST level indicator, plinth,
VOLUME cat ladder, cover,
overflow pipe, drain
LINEAR pipe
i and d valve
l
RM No. 2 Galvanised BRC no 28 MS 4.50
and approved welded
UNIT RATE fabric and fixing
g
3 Reinforced Concrete Cu.M 18.50
(1:2:4) in extended pile
cast on site
 Concluding remarks
Concluding remarks
• Cost
Cost studies is one of the core knowledge 
studies is one of the core knowledge
should be attained by a quantity surveyor. 
• It helps the quantity surveyor to estimate the 
It helps the quantity surveyor to estimate the
costs for a future projects based on several 
information.
information
• Cost studies is also useful and crucial among 
the construction firms/contractors to prepare 
h i fi /
the most competitive unit rate and eventually 
total construction costs for tender bidding 
l i f d biddi
purposes.
 Reference and further readings.
Reference and further readings.
• Ahamad
a ad Abdullah –
bdu a Anggaran
gga a Kos Kerja
os e ja
Bangunan,2nd Edition, Pearson Prentice Hall, 
2011.
• Edition,Peurifoy,R.L and Oberlander, G.D. –
Estimating Construction Costs, 5th  Edition Mc‐
G
Graw‐Hill, 2002.
Hill 2002
• Popescu, C.M, Phaobunjong, K, Ovararin, N –
Estimating Building Costs Marcel DekkerInc 2003.
Estimating Building Costs, Marcel DekkerInc 2003
• Rosli Abdul Rashid – Introduction to Building 
Measurement Lecture Note 2006
Measurement, Lecture Note, 2006.