Highly accurate cost estimation on new build projects is possible now

Cost estimation is a sensitive subject in the construction industry.

Alasdair Reisner, chief executive of the Civil Engineering Contractors Association, explained very simply why companies don't share costs within the industry. He told an audience at Futurebuild conference in early 2019: construction contractors place their livelihoods on keeping their costs confidential.

Secrecy around cost estimation

In the construction industry, there are plenty of trusted, shared cost databases (SPONS, BSI, RSMeans…). There's also plenty of cost estimating software out there. However, each construction contractor and subcontractor will have their own version of a cost database personal to their company. They might own equipment that to get a particular task done faster and cheaper. They may have expensive specialist staff who might be able to get a specific job done to a higher standard. Project costs fluctuate across the year due to things like oil prices or the availability of sand.

Construction contractors often find it hard to collate all the cost data across the project. Especially in the case of the general contractor, they will get cost data from a variety of sources and companies. Sets of data come in different formats and are often hard to compare against one another.  

Contractors are usually given around a month to submit a bid on a project. The process it takes to get a bid together isn’t possible to do in detail within such a short time frame. This prevents collaboration with everyone involved, and encourages rushed (and therefore inaccurate) cost estimation.

Where does the real estate industry come in?

For new buildings, the Client dictates the length of time contractors have to bid. The Client determines the price they are willing to pay for the development. This price is often estimated without many details or scenario planning. At this stage, cost is just an indication, rather than an accurate milestone to aim for. But the Client will use that cost as the deciding factor over who wins the bid.

When it takes so much time and money to put a bid together, a company might do anything to win it. Even if that means adjusting the real costs to fit the bid price the Client has said the building should cost.

More often than not, the cost of the project will be far higher when it’s completed. This will affect the profits of the developer and often results in major problems for the contractor.

How to avoid cost overruns

Construction worker on scaffoldingAs we at Kreo use AI to improve pre-construction planning, we think this is totally avoidable. Clients can get an accurate cost estimate from the start of building planning. Every change to the building design should be fully costed and worked out at each stage. The only excuses about extra expense down the line should be from extreme unforeseen issues, such as war or flash-flooding.

Building Information Modelling (BIM) was a process designed to improve pre-construction planning. But people still aren’t doing it properly (if at all). Currently, with or without BIM, hardly anyone can afford to get building planning truly accurate from the start. It comes down to cost and time. If a Client wants to get an accurate cost estimate, they need to spend more money up-front. According to Terry Stocks of the Centre for Digital Built Britain,

“The real benefit of BIM is to coordinate designs so errors are made in a virtual (and cheaper) world. More spent earlier in the process should give better outcomes – but should not necessarily mean more fees overall.”

Spend on planning, not mistakes

planners-programIf everyone involved on a construction project worked together to combat poor pre-construction predictions, project outcomes would improve. Clients who understand the value of accurate project planning usually understand what makes BIM valuable. The fact you can work from one building design in one shared location is key. The Client must be the champion of BIM and mandate the process on their project.

As developers, housing associations and local authorities alike start to plan buildings more accurately than ever before, the quality of buildings will increase. There will be less acceptance of error. Slowly, we'll see construction becoming the well-respected industry it should be.

No company can say that BIM alone secures a project's success. But by mandating the use of BIM (as the UK government already does on all its new buildings), you ensure a minimum standard of accuracy in planning. By spending more on the planning stage of a project, developers can ensure superior project outcomes and long-term cost savings.

Changing business processes

The most significant barrier to getting cost estimation right is being truthful about costs. When construction companies start to share cost more openly, they will no longer use cost as a commodity. Those who share their costs first will benefit from being more accurate in their estimations and more trusted by Clients. They will become "disruptors" in the industry. Companies that refuse to share their costs will suffer.

If the property industry spread the cost of BIM, we would start to see the end to projects going over budget. We would see more collaboration and openness at every stage.

Sharing the costs involved in planning and designing new buildings will increase transparency and collaboration across every aspect of construction. This is not just construction’s problem - we all need to take responsibility to make change happen.

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