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#032 Design Economics and Cost Planning (PART 3) 🏗️

Hello folks 👋

We are nearly at the end of the technical and optional competencies. I’ve now covered Level 1 and 2 of them all so we shall now be moving on to Level 3! I will review Design Economics Level 3.

Here are my Level 1 and Level 2 posts if you’ve missed them!

I would highly advise you to go through the candidate guide and the QS pathway guide to understand the basic requirements.

DISCLAIMER: The following is not an exhaustive set of notes, but it's an attempt to help those who, like me at the beginning, did not know where to start! Please feel free to let me know if I have said anything incorrect or out of date!

So what is Level 3 Design Economics all about?

The RICS note that to demonstrate competence at Level 3, you need to demonstrate your ability to:

Give strategic and reasoned advice, including the preparation and presentation of reports with reference to cost, time, quality and buildability. Advise on various market factors and trends in construction costs. Comment on accuracy and risk.

Preparing and presenting reports with reference to cost, time, quality, risk and buildability, including qualifications and exclusions

  • This is a straightforward requirement. You need to be aware that there within the lifecycle of a construction project there are two types of cost reports. The types relate to when the reports are produced i.e. pre and post contract. We’ve covered post-contract cost reports in the Project Finance Competency - so please check that post for a quick review.

  • This competency is mainly focused on the pre-contract cost reports. These cost reports are produced during the design phase(s) and they inform the client of the potential cost. In the RIBA world, they are produced generally at the end of each RIBA stage, however, depending on the client, their level of experience and the type of work, there may be more frequent reporting requirements.

  • The reports need to cover the cost of the project (pretty obvious one if you ask me), time i.e. projected programme and how long it’s going to take, quality i.e. the standards to which it’s being built. Buildability is an interesting one because in the projects that I have worked on, buildability as a concept refers to how the asset will be constructed, this generally has an impact on prelims. In my cost reports, I do not cover this as a separate section, rather it’s built into the meat of the cost!

  • Risk is always an interesting one and it will differ from project to project and the level of risk should decrease as the project moves through the design stage gate. In the early stage, you may apply a high-level percentage of risk based on previous similar projects. As the project progresses this will get refined via risk registers, and on more complicated projects, monte carlo analysis may be used.

  • Qualifications and exclusions are an interesting one - they basically tell the client everything that you have not considered in terms of time, cost and quality. The client will usually skim through these and tell you whether or not you should allow for any items within your estimate. Most of it is built up from a standard list of exclusions but some may be project-specific.

  • The above is the minimum you should know regarding the content of these reports. Preparing them gets easier over time as you get used to the processes and templates. Presenting in front of the client can be daunting, but part of becoming a charted surveyor is becoming sure of your abilities. A client needs to have confidence in your estimate, but how can you expect them to be confident in your abilities if you aren’t confident in yourself? You build this confidence with experience and by learning!

Evaluating building design efficiency

  • This refers to how you assess the function of a building. Generally, you will need to do benchmark your assets to similar buildings to determine where your asset sits amongst them.

  • There are several ways to measure building design efficiency. One method is the Wall to Floor ratio. The wall-to-floor ratio of a building is calculated by dividing the external wall area by the gross internal floor area. This indicates the proportion of external walls required to enclose a given floor area. A reasonable ratio on central London offices is considered to be in the order of 0.40, with 0.35 and below being regarded as very efficient - Haneefa Ch.

  • Depending on the asset you will also consider the percentage of circulation space. In general, circulation space is not a good thing because it means that space is not being used for revenue-generating purposes, therefore it should be as low as possible.

  • You may also look at unit analysis to assess how the space has been used to increase the number of unit uses. For example, how has the space been used to increase the number of beds if it was a hotel for example.

Assessing/evaluating market factors and trends in construction costs

  • This point requires you to have general commercial awareness. You need to be aware of the current market and potential impacts on construction. As I am writing this an invasion occurred in Ukraine, as a result, this may cause further inflationary impacts to us here in the UK either on the price of fuel or steel or any raw materials.

  • Your knowledge needs to cover political, social and economic trends so keeping up with current affairs is crucial!

Analysing the accuracy of predicted cost using benchmarking techniques

  • Benchmarking for me is a bit of a magical subject especially if you are working on bespoke projects. Sometimes there is nothing for you to benchmark against and it may feel like you are just working on an analysis that may not bear a true cost.

  • However, benchmarking can be useful when you are doing loads of repetitive work. It means you have a true understanding of the cost and know that you are getting a true representation of the value of the work especially if you get multiple similar quotations.

  • In order to benchmark effectively, you need to use recent costs from similar projects in a similar area. This sounds simple in theory but in reality, you will need to normalise benchmarking data to bring it in line with your data set. You need to be able to compare apples and apples!

  • In my view the order of priority for benchmarking data is as follows:

    • Final Account Costs - these are outturn costs at the end of a project

    • Tendered Rates - valuable because it’s a quote from a contractor but it is subject to variations!

    • Estimates - I'm not talking about RIBA 2 estimates here, I will only rely on Formal Cost Plan Rates if they have a rate breakdown.

  • You need to be able to explain to the client how you have evaluated the data and why you have given preference to some cost information over others.

Interrogating historical cost data

  • This is heavily linked to the bullet point above. You need to be able to interrogate cost data by looking at the materials used, the labour required, the number of shifts and the location of the work. Not all elements will be the same - this is where you have to normalise to ensure you comparing the same thing. Obviously, this means using location and date indices to bring the historic cost up to date!

Using value and risk management techniques.

  • Value management techniques are undertaken by QSs during the estimate stage and often during post-contract variations. Most don’t even realise they are using this skill. In general, value management refers to how we help the client achieve value for money. One of the tools we use to achieve this is value engineering which means we look at a process, activity, or item and assess how we can achieve the same function with the least cost. Instead of using gold bricks, you can use normal bricks - yes a silly example but you get the point. You can go even further and say instead of using bricks we can just hang up two poles and some fabric and we have a separation between two rooms because that’s the function we need to prioritise!

That’s it for this post folks! As always, if you have any questions please let me know!

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