Intermediate cost studies

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Introduction

The client, Travelwell Motels Ltd, is an organisation providing low-cost, budget hotel accommodation adjacent to the country's motorway network. They have recently acquired a site for a 100 bed development. The client hopes to be “open for business” by April 2009, in time for the start of next year's tourist season. I have been employed as a Cost Consultant for a private practice in the city and have been asked to provide professional services for this client.

Question 1 Client's requirements in terms of Time Cost and Quality

The financial considerations of a project forms part of a range of factors to be evaluated and balanced by the project manager on behalf of the client group. Ferry et al (2007) suggests the primary factors should include; functional, technical, aesthetic, financial and environmental. These factors are the characteristics of the project and are often considered and analysed under the simplified titles of Time/Cost and Quality.

In following the Clients decision to build and appoint the necessary construction professionals to assist in order for this to happen they must state clearly their objectives and requirements of what they expect from the project. The three main objectives include; how long it will take (time), how much it will cost (cost), and what the quality will be like (quality). Smith et al (2007) illustrates these three main factors below in the 'objectives triangle'

Time

The most obvious factor for time is the time it takes for construction of the project Ashworth (2008). This entails the time taken from the beginning of the project to completion with an awareness being made for the life cycle of the building through its working life.

Time based client's requirements for this project are; Shortest Overall Time from Inception to Completion, Firm Completion Date Stated by Client and Early Completion date welcomed.

The Client has stated a firm opening date for their hotel of April 2009. This completion date is important to the whole project with no room for negotiation in finishing later. The Client requires the hotel to be up and running to meet this date therefore would most definitely impose tight time constraints on the design as well as the construction. It is critical this date is achieved as the client does not want to lose bookings therefore ensuring the wrath of bad publicity when the hotel has just opened. As the client is new to the area they cannot afford their competitors to gain advantage from any unnecessary bad publicity caused by late completion of the project.

The project is profit led therefore the hotel only starts making money when reservations and bookings are made. Early Completion would be welcome as this would give the client the opportunity to train a large number of hotel staff up and also allow any additional fitting out to happen prior to the finalised date of April 2009

Cost

Speed of construction can be pursued regardless of cost and quality leaving a total disregard of the final effects on the cost of a project. Therefore it is important that all parties in this project recognise that it is unrealistic to set the objective of getting the most building for the least cost. Morton et al (1995) acknowledges that effective cost control throughout the project is closely related to the care, thoroughness and quality of the planning and decision-making process during the design stages. Cost based requirements for this project include; Low Cost in Relation to Units of Accommodation, Good Budgetary Control of Whole Project and Best Combination of Capital and Maintenance Costs.

As the project is a Hotel the Client is responsible for the building after completion of construction work, it is likely that the client will want to minimise their capital expenditure in order to maximise their likely profit margins. As the Client will be competing in a competitive market with similar hotel chains and the project is profit led it is important that the levels of capital expenditure are relative to the project. The Client requires to be informed on a regular basis what is being spent and whether it is within the set budget limits. If there are any changes to the initial design this will in turn result in an unplanned cost or time delay, therefore it is important to concentrate the design team's effort on making those decisions during the design stages prior to construction work commencing.

As stated before the Client will be retaining the building once construction is complete therefore the will be liable for any costs associated with the running and maintenance of the building. It is in the Clients best interests that appreciation is given to the life cycle cost of the building at design stages as this could have a profound impact on the clients profit in the years following the opening of the hotel i.e. if the building suffers any service faults i.e. heating, water and power this could lead to closure resulting in loss of income.

Quality

The factor of quality is the most difficult to define as it includes so many aspects of the completed project, for example; function (purpose of space), performance (physical properties, weather exclusion), aesthetics (appearance and appeal), technical (materials/construction methods used) and environmental (sustainability considerations). The Clients requirements with regards to quality have less importance than the other aspects of time and cost in reference to this project. This is due to the firm completion date required by the client. The essential factors of this project are that it must be completed within the correct timescale at the desired cost. As it is a low-cost budget hotel the quality aspects doesn't have the uppermost importance of the time and cost of the project. However as stated before in order to avoid increased costs of maintenance and running expenses the quality of the project must be of a certain standard in order to avoid these additional costs in the future.

The combination of factors as noted above in respect to both Time and Cost for this particular project with regards to the Clients Requirements must be followed and implemented by the design team when considering probable design/cost solutions in order for this project to fully attain the Clients desired Requirements.

Main Conditions Affecting Design

Project Constraints

As the project is situated on a redeveloped Greenfield site there is unlikely to be any physical constraints due to the vast amount of available land at this location. However prior to the design stage a full site investigation should be carried out in order to obtain vital information with regards to ground/soil conditions, location of any surrounding services, height of local water mark.

It is also worth noting that due to the location of this site, access to and from site can be achieved with ease due to the proximity of the surrounding motorways.

External Constraints

As the site is a redevelopment of a Greenfield area there should be no planning restrictions from local authorities. The site investigation should pick up any natural landmarks i.e. protected forestry and this should be addressed prior to entering the site. We recommend that due to the amount of space available an external car-park should be designed rather than basement car-parking as this will have an impact on the design but more importantly the cost of the project

Building Height

As a general guide the lesser the number of storeys the more economical the project costs are (in unit cost per square metre). This is mainly because of the greater circulation and servicing requirements required for larger, multi-storey projects. It is our recommendation to avoid a high multi-storey design due to a number of factors which include; additional requirements for intermediate service zones, vertical circulation cores (stairwells and liftshafts) will form an increasingly higher percentage of the floor plan and finally construction costs will increase and production levels decrease due to the loss of working time caused by both labour and materials moving up and down the building.

It is our recommendation that the most cost effective height for the proposed hotel should be a two storey building. This is mainly due to the location of the site and the design factors associated with a 2 storey building. In order to obtain the optimum cost effective building it is vital to maximise the space available. As this is a Greenfield site situated in the outskirts of the city there should be adequate space available for a 2 storey development as well as a car-park. Also with a 2 storey designed building one set of foundations and one roof can accommodate two times the floor area, with both the external walls and frame of the building being able to support additional load with minimal/no adjustment.

Building Shape

The shape of a building has an important effect on its costs. The more a building shape detracts from a square the more expensive the external envelope (external walls, windows and doors) will become in relation to the remaining building costs Smith et al (2007). As a building becomes longer and narrower, or its outline more complicated and irregular, so the perimeter floor area ratio will increase and be accompanied by a higher cost due to the increase in perimeter length.

We would advise against an irregularly shaped building as it would increase the costs for the following reasons; scaffolding areas and associated costs would be greater, the setting out of the project is more complicated and the most important factor with this being a hotel is the cleaning and maintenance would be more extensive, expensive and possibly more difficult.

We would advise the most cost efficient shape for the design of the building is would be a rectangle. As the hotel will have a high density of rooms and only 20% circulation space available it would be more economic to elongate the building with the rooms situated in long corridors and the circulation spaces situated at either ends.

Circulation Areas

Circulation areas account for a high cost of the total construction costs. These areas can account for between 10% and 50% of the gross floor areas of the building depending upon efficiency of layout and function. Travelwell have stated they require 20% of the gross floor area to be circulation areas. We would recommend this percentage as this would allow a suitable amount of floor area to be utilised for vertical circulation i.e. stairwells and lifts and a suitable amount for horizontal circulation i.e., long corridors to access bedrooms. As this is a budget hotel there will not be a large emphasis on leisure and dining facilities although this 20% will allow for a reception areas and small bar/restaurant.

Miscellaneous Concerns

Operational

As the site will be based on the outskirts of Glasgow city centre at a Greenfield area there should be no restrictions on working hours. However prior to construction, all surrounding neighbours should be given notification of the intensions of the contractor in relation to this issue. It is also worth noting that as the site will be situated adjacent to the major motorway networks serving the city there should be no problems in relation to access/egress to and from the site.

Social

As noted in our previous points surrounding neighbours should be consulted and informed of the construction project and any adverse effect it will have on their business i.e. road closures for drainage/existing service connections, noise pollution. It should also be taken into account that due to the location there will be a low level of risk resulting in minimum threat of security/vandalism.

Environmental

Due to the location of the site in West Central Scotland all materials should be available locally thus reducing the requirement of procuring materials from suppliers situated a far distance from site. If materials are procured locally a substantial saving could be realised with ensuring this happens. Waste disposal should also be carried out locally for similar reasons.

Technological

Similar to the points raised before as there should be a high availability of skilled labour, resources and specialised components/plant within close proximity to the site. We recommend that when possible all labour/materials/plant should be selected from the local regions in order to keep the total cost of the project to a minimum.

Question 3 Appropriate Cost Forecasting Techniques

The two types of cost forecasting techniques which might be utilised at this stage are the cost per functional unit method and the cost per gross floor area method. At this stage in the project where there is little/no design information available these two methods would be the most appropriate in order to forecast the costs of the project. The first method I will discuss is the cost per functional unit.

Cost per functional unit

This method entails of selecting an appropriate standard functional unit of use for the project, and multiplying the projected number of units by a suitable cost per functional area. This particular method can only be utilised where a building's use can be examined consistently in terms of its functional units. Some examples may be a school would be measured in cost per pupil, an office may be measured in cost per workstation and in this case a hotel may be measured in cost per bedroom.

This method requires very little design information as it relies on data form previous projects. This method also relies on the Building Cost Information Service (BCIS) and other published sources of building cost data based on the following factors as described by Ashworth (2004);

Number of functional units Â- This should be obtained from the client direct who will express their desired requirements in this case they want to achieve a 100 bed development.

Cost per functional area Â- As this development is part of a large organisational chain of nationwide developments records and analysis of past projects' functional unit costs should be made available.

Ashworth (2004) continues to say that the main advantage of using this method is that it's a very simple calculation to carry out using cost information from previous projects which should be readily available. This gives the client the opportunity at an early stage to compare the cost effectiveness of different schemes and to finalise a design they are happy with in regards to both function and cost. This method requires very little design information so this can be carried out in the very early stages of the planning of the project.

The disadvantages of this method are that this method can only be used where a building can be measured consistently in terms of functional units. This may prove difficult in dealing with renovations/extensions and recreational facilities', where it's extremely difficult to determine a relevant and consistent functional unit. Another disadvantage is that this form of cost forecasting should not be used beyond the briefing stage of a project as more precise methods are available.

This method can only be used during the very early stages of a project as there is inadequate project detail to apply more accurate and detailed costing methods. As the method is carried out at this stage estimates will be very approximate and will vary a great deal depending on the type of construction and standard of finish. This would make it extremely difficult in establishing a realistic cost per unit without the sufficient information.

This method should only be used to provide a rough guide to likely project costs thus enabling the client to set overall cost limits and cost targets for the project.

Cost per gross floor area

This method is comparable to the cost per unit method in that it uses a single rate technique (cost per square metre) of estimating to determine the cost of a building. This is a popular method of cost forecasting used widespread throughout the early stages of a project when the floor area of a building can be assessed/measured accurately from drawings.

It is a relatively simply procedure where the GFA of the building in square metres is multiplied by a suitable rate per square metres. Measurements are carried out for each floor between the internal faces of the perimeter walls. Split rates can be calculated for areas of the work within the building as long as suitable comparisons are made available.

Sources of information required for this method are the total area of the building. The GFA should be obtained from drawings and planning scheme data. There should also be an outline specification made available from the client indicating the required quantity that will satisfy their requirements. Other sources include internal office records of previous projects where all costs are expressed in cost per square metre.

The BCIS and other cost guides such a Spons and Laxtons provide comprehensive costs for various types and different quality buildings. Flanagan et al. (1997) believes these guides are extremely useful where a building consists of many different parts which are of different quality/function to the rest of the building. These parts should be measured separately but suitable rates applied to each part.

The advantages of this method are that the unit of measurement used (GFA) is extremely useful and meaningful to all parties concerned in particular the client and architect. The Client is ably to fully understand the cost per m2 in relation to the accommodation provided. As similar to the functional unit method estimates can be prepared promptly and are straightforward using cost information from previous projects however the accuracy is conditional upon selecting a rate from a past project with similar features.

The major disadvantage of using this method is that it is extremely difficult to make modifications for differences in plan shape, site conditions, structural form and construction techniques and trying to calculate all these with a single rate method cannot be achieved accurately. In order to calculate any project accurately data and cost information from a similar building is required. Finally a straightforward measurement of the gross floor area does not take into account the floor to ceiling height throughout the project.

As similar to the cost per functional area method this cost forecasting process should only be utilised at the early stages of a planning a project in order to obtain a quick estimate and indicate potential projects costs thus aid the Client to set their project budget.

Question 4 (ii) Key Factors Taken into Account to Ensure Accurate Costs are Calculated

As this is a new project and is at the initial stages of design there is very little design information available to use to build up a cost for the project. However as the project involves constructing a hotel for a nationwide organisation there would have been a number of similar projects completed beforehand. Previous projects give us access to information relating to overall costs of these projects therefore letting us form a basis for the costing of a newer, similar project.

As this cost data is likely to be old there is a number of key factors which must be taken into consideration when calculating the cost of the new project. Where the information is taken from is a key factor. Sources of cost data can include; technical press, builder's price books, information services such as BCIS and as stated before own office records of past projects. It is up to the individual calculating the cost to select the most appropriate source of information and ensure any adjustments are made to the project calculation to ensure the date is appropriate.

When the individual has collected historical cost data Smith et al. (2007) explains that it is essential they have the means to adjust for differences in process at different times in order to ensure an accurate cost is calculated. Building price indices allow us to carry out adjustments to building costs and market conditions from a base date closer to the present. Cost data taken from a tender of a previous project is only satisfactory for the time of that project and in that location. The BCIS provides a full range of building cost, tender and trade price indices. The purpose of these regional tender price indices is so that adjustments can be made for different locations within the UK. For example with this project the adjustments were made between the locations of Manchester and Glasgow and between the years of 2004 to 2009.

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