What is Cost Modelling ?

INTRODUCTION

Do you know what is cost modelling? Cost models, based on historical data, are great tools to aid high-level factor estimates. Cost models are computer models which take as input the relevant cost drivers of an object (such as a piece of equipment or an entire project), perform a calculation and return a cost estimation for that equipment or project.

Cost models are technical aids which enable management decisions to be made in the context of building design. The primary function of cost models in this context is to provide reliable cost forecasts, either for the client or the contractor. More specifically, the management decisions supported by cost models include:

 • forecasting the total cost of construction.

 • comparing design alternatives.

• forecasting the economic effects upon society of changes to design codes and regulations.

Because clients undertaking construction projects will wish to have an understanding of their financial commitment, it is appropriate to apply cost modelling techniques as early as possible in the development process, prior to commissioning extensive design work. Furthermore, because design precedes construction in the development process, cost modelling is generally commenced at the beginning of the design stage. At its earliest, this could be the initial feasibility study of a project. Various cost modelling techniques may then be utilized throughout the design process, generally in accordance with the level of design information (drawings, specifications etc.) available at any particular stage. Importantly, such design information portrays the completed product or building, rather than the production processes of construction. That is, the design information represents what is to be built (in terms of the completed building), as opposed to the production process of (explicitly) how the building is to be constructed. As such, cost modelling techniques used during the design process, which are based upon such design information, have also traditionally focused upon modelling the completed product price, rather than modelling the production process cost, of construction. Consequently, two distinct paradigms of cost modelling techniques exist:

• Product based – where the completed building is modeled.

• Process based – where the construction production process is modeled

. These differences have been recognized for some time. Beeston (1982) suggests that cost modelling techniques are either “black box” (product based) or “realistic” (process based). Realistic methods are derived from attempts to represent costs in the ways in which they arise. ‘Black box’ methods do not attempt to represent the ways in which costs arise.  The cost modelling techniques used during the design stage of the development process are distinctly “black box”, and suggests that “modelling the reality, i.e. the way costs are incurred on site, does not enter into the (development) process until operational costs are considered, usually at the post contract stage. The cost modelling techniques themselves are now considered separately in terms of product based and process, or resource based, cost modelling techniques.

PRODUCT BASED COST MODELLING TECHNIQUES

DEFICIENCIES OF PRODUCT BASED COST MODELLING TECHNIQUES

The product based cost modelling techniques outlined are considered useful on the basis of their ease of application, familiarity and speed, and a tolerable level of accuracy as noted. However, the same models have also being criticized on the basis that:

• They are not (explicitly) founded upon construction production criteria as the generator of cost

• They do not fully represent the relationship between design decisions and the resulting construction processes

• They fail to consider the uncertainties of the construction process (Bowen et al, 1987; Bowen, 1993).

• The cost data used to support such models is often taken from previous projects, previous bills of quantities, price books etc. and does not represent cost as a function of resource usage, but rather as a function of the completed building product.

Thus the criticisms of traditional product based cost modelling techniques are focused upon two main concerns:

• Firstly, the lack of an explicit relationship between the cost modelling techniques and the construction process.

• Secondly, the use of distorted cost data to support such cost modelling techniques.

 

DESIGN COST MODELLING AND THE TRADITIONAL METHOD OF BUILDING PROCUREMENT

Notwithstanding the time constraints of resource based cost modelling techniques, it is postulated that any lack of resource based data, or understanding of construction processes, on the part of consultant quantity surveyors is predominantly a function of the traditional method of building procurement itself. Such a method distinctly separates the design and construction stages of building development and creates cost specialists in each consultant quantity surveyors in the design stage and contractors in the construction stage. Any time constraints which preclude the use of resource based cost modelling techniques merely serve to reinforce this division caused by the traditional method of building procurement.

This traditional fragmentation of the design and construction functions has created walls around the project participants, resulting in ineffective communication processes. Such “walls” create an environment in which processes such as cost modelling, and the information upon which they are based, are often conducted in a climate of self-perpetuating isolationism. In such an environment, consultant quantity surveyors suffer from modelling a design which does not explicitly represent all the cost generators which are fundamental to the accuracy of the cost model. Such a problem to result from the functional gap created from differing data requirements and traditional barriers existing between professionals. In addition, the separation of the design and construction processes under the traditional method of building procurement has effectively excluded contractors from the design stage of the development process. As contractors are the specialists of construction, and by extension construction processes and methodology, the implementation of construction process expertise into design cost modelling techniques is also excluded.

CONCLUSION

Consultant quantity surveyors generally utilize product based design cost modelling techniques; such techniques reflecting the design information upon which they are based. These techniques do achieve a tolerable level of accuracy. However, they are deficient in terms of lacking an explicit relationship with the construction process they are purporting to model, and by using distorted cost data to support them.

Whilst resource based cost modelling techniques have been developed, the traditional product based cost models retain greater favor with consultant quantity surveyors. Reasons proffered for lack of use of resource based cost modelling techniques by consultant quantity surveyors include lack of data, lack of understanding of construction processes, and time constraints. These restrictions emanate from the traditional method of building procurement which distinctly separates the design and construction processes and thus militates against the easy transfer of data between the actors engaged in them.