Cost Control and Procurement

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BT 365 COST PLANNING AND CONTROL

Lecturer: J.K. Ofori-KuraguSeptember, 2006

Course Objectives / Course Outline:
At the end of this course, you will know:
1. What Cost Control is.
2. Purposes of Cost control.
3. Elements of Cost Control
4. The Introduction to Cost Control Systems.
5. Cost Analysis and Cost planning
6. Costs in Use
7. Introduction to Value Engineering

Recommended Texts
• A. Ashworth Cost Studies of Buildings
• Ivor Seeley Building Economics 3rd edition upwards • Douglas J. Ferry & Peter Brandon
- Cost Planning of Buildings
• Any good book on Cost Planning/ Cost Control
• Any Books by any of these authors

COST PLANNING
This can be defined as controlling the cost of a project within a predetermined sum during the design stage. This involves preparing a cost plan and doing cost checks.

COST CONTROL
Seeley (1993) defines Cost Control as “all methods of controlling the cost of building projects within the limits of a Predetermined Sum throughout the design and Construction stages.

NB: “Cost” as used here refers to the cost to the client not the contractor.

IMPORTANCE OF COST CONTROL

1. The need to complete building projects is becoming increasingly important to clients. Very few clients will tolerate delays arising from the need to redesign schemes when tenders are too high. 2. The needs of building clients are increasingly becoming more complex as a result of which estimation of probable costs is becoming more difficult. In turn, more effective systems of cost control are required for projects from inception up to the completion of the final account as well as controlling costs during the life cycle of the scheme. 3. Clients of the construction industry are becoming larger, more efficient and adopting more sophisticated techniques for forecasting and controlling costs. As a result, the Construction Industry requires professional advisors for building projects to demonstrate a high degree of efficiency and expertise in advising on costs. 4. The trend of modern designs, new construction techniques, new materials and new methods of construction give designers a wider choice of products. The result of this growing trend is a wider variety in construction products. Efforts to produce balanced designs and achieve value-for-money using traditional methods of estimating have severe limitations, which demonstrate the need for effective ways of controlling costs. 5. Existing estimating methods have sometimes not been adequate in giving estimated costs. When this happens, the project involved may receive a lot of adverse publicity. 6. In a bid to win more t6enders, most contractors may reduce their profit margins. With reduced profit margins, there is now a greater cost-consciousness ton ensure that any possible losses are avoided through effective cost control. 7. The increasing emphasis on the elimination of waste in construction and the need to use the world’s diminishing resources judiciously calls for improved methods of forecasting and controlling the costs of construction. 8. The cost of capital for construction has become very high as a result of inflation and high interest rates. Coupled with a general shortage of investment capital for construction as a result of global economic trends and restrictions on the use of capital, these all make effective cost control very important. 9. The rising demand for integrated design that efficiently delivers both building and services elements in complex developments like hospitals, airports etc., require effective cost planning to ensure that the design solution delivers value-for-money.

PURPOSE OF COST CONTROL

1. Limits the client’s expenditure keeping it within the agreed amount. (means that the tender sum and final account should be approximately equal to the budget estimate). 2. Helps during the design stage to achieve a...
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