My dad was “blogging” even before there were any blogs! I have many of his articles and white papers dating back into the 1980’s, that I think need to be shared. I will be adding some of his articles to Oh, By The Way… because the info is still very good. Here is a look at another.
Controlling Capital Costs Prior To Construction
Reliable cost estimating methods exist to keep budgets in line with the expected bid amounts. These methods are available for use with the decision and design process of any project. The methodology is to perform construction cost estimating with historical costs, professional estimators, and organization and procedures. By adhering to this methodology, costs can be controlled from project inception.
Decisions to proceed with a project by facility owners and developers, are made with the intention of attaining a profit. With a developer, the profit is attained by leasing or selling the property at a rate that will exceed the cost of the facility. With an industrial plant owner, profit is attained by keeping production of the final product at the lowest possible cost. The decision to proceed with a project is usually made after preparing feasibility studies that involve several considerations, among them being construction costs.
All too often, facility owners and developers rely upon feasibility estimates prepared by “number crunchers” using common construction cost reference books. This can have the undesirable effect of establishing a budget that is improper for the project.
In addition, if facility owners and developers do not dedicate any further time to the construction budget until bids are received from contractors, it then becomes a case of too little, too late. Bids may come in substantially higher or significantly lower than budgeted.
If the result of this is a substantially high variance from the budget, it can cause the facility to incur additional costs to keep on schedule, the schedule to slip due to reworking the design, or the project to be postponed indefinitely. If there is a significantly low variance from the budget, it can cause the schedule to slip in order to bring the design up to budget or an unrelated project to have gone unfunded due to a priority in the allocation of funds. Both of the above results are detrimental to the facility owner and developer.
There are resources available to aid the owners and developers in their quest for attaining reliable budgets prior to receiving bids. These include the use of historical cost data and professional estimators along with a method of organization and procedures to follow for estimating. While the use of these resources will appreciably reduce the exposure to budget variances, the variances will not be eliminated entirely. However, the facility owner and developer will be better prepared to analyze the cost discrepancies that might occur. Article Continued.