Effective cost management requires preconstruction planning that clearly communicates and analyzes the costs of individual project components and systems. The cost-management process uses estimating, benchmarking and value engineering not as discrete tools, but as preconstruction planning services.
Benchmarking is used both for developing estimates and for verifying that the costs of each component and system fall within the proper range for projects of that type. Value engineering looks at a project’s performance goals and analyzes the most cost-effective ways to meet them. The experienced construction manager maintains a database for projects of similar scope and building type from which to draw, analyze and compare costs.
Clearly, the key to effective cost management is information — estimating, benchmarking and value engineering analyses that are carefully compiled and presented. In the right hands, such data can go a long way toward ensuring a project that is designed within budget objectives, meets agreed-to performance and quality goals and provides information that shortens the project schedule.
To ease decision making, project budgets should be configured so that each component and building or process system is isolated and presented. This allows system component costs to be compared to those of similar projects for the development of a benchmark analysis. This approach varies from the structure generally used, in which cost information is presented for the entire project according to a Construction Specifications Institute format. That format identifies the total cost of concrete, masonry, carpentry, plumbing, electrical and other specification categories.
The standard estimating technique often does not take into account the kinds of information needed to make cost-effective decisions. Consider a planned corporate headquarters comprising a dining facility, conference center, fitness center and office buildings. The typical approach would be to estimate the total cost of each CSI specification category.
A more effective means of communicating costs is first to dissect the components. Analyze the costs of the dining facility, conference center, fitness center and office buildings individually and compare them with those of similar corporate projects. Doing so would allow the facility executive to identify whether certain elements of the project, such as the fitness center, need to be scaled down or eliminated based on their cost relative to the whole project. Alternatively, it might allow the facility executive to be convinced that some elements represent a cost-effective investment.
Next, the estimating and benchmarking process should examine not the total cost of concrete, for example, but rather the individual costs of the foundation system versus the structural system. By separating these, it is possible to attribute the cost of the foundation when benchmarked against those of similar projects. Hypothetically, a higher cost might be caused by the configuration of the site. If the project is being built into a hill, for example, foundations will cost more than those of similar projects.
As the project design progresses, benchmarked estimates provide increasing levels of detail. At every step, the process develops details needed to understand whether each component’s estimated cost fits within a benchmarked range and if not, why not. The process also enables the project team to examine whether there are more cost-effective ways to meet performance goals.
Isolating and benchmarking costs identifies areas where the greatest cost savings exist without sacrificing scope, quality or architectural appeal.
An effective approach to value engineering asks how buildings can be designed to cost-effectively meet design and functional goals. To take this approach, look first at how individual components and systems meet the building’s performance goals, then at the design standards and sizes of systems and components, and finally at the details and materials.
William K. Flemming is senior vice president at Skanska USA Building Inc. in Parsippany, N.J.